NEW ISSUE BOOK ENTRY ONLY

oH-1:1.:10

RATING: Moody's: "MIG 1" (See "Rating" herein)

In the opinion of Quint & Thimmig LLP, San Francisco, California, Bo11d Counsel, 1mdcr existing law, suhject to SPURR's compliance with certain covenants, interest on the Notes is excludable from gross income of the owners thereof for federal income tax purposes under sectio11 103 of the lllfernal Revenue Code of 1986, as amended (the "Code") and, under section 55 of the Code, is not includt?d as an item of tax preferozce in computing the federal altemative milzimum tax for hidividuals and corporations under the Code but is takoz into account i11 computing an adjustmelll used in determining the federal altemativc minimum tax for certain corporations. In the further opinion of Bond Counsel, such i11terest is exempt from Cailfornia personal income taxes. See 'TAX MATTERS" herein.

a SPURR S<'hool Projttl ror U!RII) R•IC' Rtdllttlon

Dated: October 30, 2008

$7,500,000 SCHOOL PROJECT FOR UTILITY RATE REDUCTION

2008 Revenue Anticipation Notes (Natural Gas Purchase Program for Member California School Districts and

Community Colleges and Other Non-Member Affiliated Public Entities)

Due: September 15, 2009

The Notes will be issued in denominations of $1,000 or any multiple thereof. Principal and interest on the Notes will be payable upon maturity by check or draft of Wells Fargo Bank, National Association., San Francisco, California (the "Paying Agent").

Amount

$7,500,000

MATURITY SCHEDULE

Coupon

4.5oo;,, Yield

4.125% CUS!Pt

807862 AM9

The Notes, in accordance with California Jaw, are general obligations of the School Project for Utility Rate Reduction ("SPURR") payable solely from income, revenue and other moneys of SPURR attributable to SPURR's 2008-2009 fiscal year and lawfully available for payment thereof. As security for the payment of the Notes and the interest thereon, SPURR has pledged (i) an amount equal to $2,500,000 from the first unrestricted revenues received by SPURR attributable to the month of April, 2009, (ii) an amount equal to $2,500,000 from the first unrestricted revenues received by SPURR attributable to the month of May, 2009, and (iii) an amount equal to $2,500,000, plus an amount sufficient to pay interest on the Notes and any deficiency in the amounts required to be deposited during any prior month, from the first unrestricted revenues received by SPURR attributable to the month of June, 2009.

The Notes will be issued by a book entry system with no physical distribution of Notes made to the public. The Depository Trust Company ("DTC"), New York, New York, will act as Depository for the Notes, which will be immobilized in their custody. The Notes will be registered in the name of Cede & Co., as nominee for DTC. The Notes will not be subject to redemption prior to maturity. Principal of and interest on the Notes will be paid at maturity by Wells Fargo Bank, National Association to DTC, for payment to the DTC Participants. See "Book Entry Only System" herein for a further explanation. The Notes are, to the extent more fully described herein, legal investments for commercial banks in California and are eligible to secure deposits of public moneys in the State of California.

This cover page contains certain information for quick reference only. It is not a summary of this issue. Investors must read the entire Official Statement to obtain information essential to the making of an informed investment decision.

The Notes will be offered when, as and if issued and received hy the Undenoriter, Sllbject to the approval as to their legality by Quint & Tlzimmig LLP, San Fra11cisco, California, Bond Counsel. It is anticipated that the Notes will be available for delivery, through the facilities of DTC, on or about October 30, 2008.

Wells Fargo Institutional Securities, LLC Dated: October 23, 2008

t Copyright 2008, American Banhrs Association. CUSIP® is a registered trademark of the American Bankers Association. CUSIP data herein is provided by the CUSIP Service Bureau, operated by Standard & Poor's, a division of The McGraw-Hill Companies, Inc. This data is not intended to create a database and docs not serve in ;my way as a substitute for the CUSIP Services Bureau. The CUSIP number has been assigned by an independent company not affiliated with SPURR and is included solely for the convenience of the registered owners of the Notes. SPURR is not responsible for the selection or uses of the CUSIP number, and no representation is made as to its correctness on the Notes or as included herein. The CUSIP number is subject to being changed after the issuance of the Notes as a result of various subsequent actions including, but not limited to, a refunding in whole or in part or as a result of the procurement of secondary market portfolio insurance or other similar enhancement by investors that is applicable to all or a portion of the Notes.

No dealer, brok<:r, salesperson or other person has been authorized by SPURR or the Underwriter to give any information or to make any representations other than those contained herein and, if given or made, such other information or representation must not be relied upon as having been authorized by any of the foregoing.

This Official Statement does not constitute an offer to sell or the solicitation of an offer to buv nor shall there be any sale of the Notes by a person in any jurisdiction in which it is unlawful for such person to make an offer, solicitation or sale. This Official Statement is not to be construed as a contract between SPURR or the Underwriter and the purchasers of the Notes. Statements contained in this Official Statement which involve estimates, forecasts or matters of opinion, whether or not expressly so described herein, are intended solely as such and are not to be construed as representation of facts.

The information set forth herein has been obtained from sources believed to be reliable but it is not guaranteed as to accuracy or completeness, and is not to be construed as representation by SPURR or the Underwriter. The information and expressions of opinions herein are subject to change without notice and neither delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of SPURR since the date hereof. This Official Statement is submitted with respect to the sale of the Notes referred to herein and may not be reproduced or used, in whole or in part, for any other purpose, unless authorized in writing by SPURR. All summaries of the documents and laws are made subject to the provisions thereof and do not purport to be complete statements of any or all such provisions.

WITH RESPECT TO THIS OFFERING, THE UNDERWRITER MAY OVERALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE NOTES AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

Wells Fargo Institutional Securities, LLC ("WFIS") is a registered broker/dealer and a member of the FINRA, SIPC and the Chicago Stock Exchange. WFlS is a brokerage affiliate of Wells Fargo & Company. WFIS is solely responsible for its contractual obligations and commitments. Nondeposit investment products offered by WFIS are not FDIC insured, are subject to investment risk, including loss of principal, and are not guaranteed by a bank unless otherwise specified.

From time to time, Wells Fargo Bank, N. A. and other banks and companies affiliated with WFIS may lend money to an issuer of securities or debt that are underwritten or dealt in by WFIS. Within the prospectus or other documentation provided with each such underwriting or placement there will be a disclosure of any material lending relationship by an affiliate of WFIS with such an issuer and whether the proceeds of such an issuance of such debt securities will be used by the issuer to repay any outstanding indebtedness of any WFIS affiliate.

From time to time, WFIS may participate in a primary or secondary distribution of securities bought or sold by a purchase of bonds or notes. WFIS and its affiliates may also act as an investment advisor to issuers whos~ securities may be sold to a purchaser of those bonds or notes.

TABLE OF CONTENTS

INTRODUCTION ....................................................... 1 THE NOTES ................................................................ l

Authority for Issuance ........................................... l Purpose of Issue ...................................................... I Description of the Notes ........................................ 2 Book Entry Only System ....................................... 2 Security for the Notes and Available Sources of Repayment ........................................... 3

THE SCHOOL PROJECT FOR UTILITY RATE REDUCTION .................................................. .4

History and Operation ........................................ ..4 Bankruptcy of Pacific, Gas & Electric Company, Inc ......................................................... .5 Board of Directors ................................................. .5 Staff Management .................................................. 6 Member School Districts- Continued Program Participation ........................................... 6 Non-Member Participants-Continued Program Participation-Other Joint Powers Authority Membership ........................... 6 Revenues and Expenses ....................................... ] SPURR's Sources of Revenue ............................... 8 Outstanding Debt ................................................... 8 Estimated Monthly Cash Flow ............................ 8

CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING SPURR'S REVENUES ............................................................... 11

Article XIII A of the California Constitution .......................................................... 11 Article XIII B of the California Constitution .......................................................... 11 Unitary Property .................................................. 12 Statutory Limitations .......................................... 12 Propositions 98 and 111.. .................................... 12

STATE OF CALIFORNIA FINANCES AND SUPPORT OF SCHOOL EDUCATION .............. 13

General .................................................................. 13 The Budget Process ............................................. 14 Recent State Budgets ........................................... 14

LEGALMAITERS .................................................. 16 Litigation ............................................................... 16 Legality for Investment ...................................... 16

TAX MA TIERS ........................................................ 16 RATING .................................................................... 17 UNDERWRITING ................................................... 18 MISCELLANEOUS ................................................. 18

APPENDIX A-LIST OF SPURR NATURAL GAS PROGRAM PARTICIPANTS ................................................................ A-1 APPENDIX B-UST OF CURRENT MEMBERSHIP OF SPURR ............................................................................................... B-1 APPENDIX C-AUDITED FINANCIAL STATEMENTS OF SPURR FOR FISCAL YEARS

ENDED JUNE 30,2006, AND JUNE 30, 2007 ................................................................................................... C-1 APPENDIX D--FORM OF FINAL OPINION OF BOND COUNSEL.. .................................................................................... D-1 APPENDIX E-FORM OF CONTINUING DISCLOSURE CERTIFICATE.. ............................................................................ E-1

SCHOOL PROJECT FOR UTILITY RATE REDUCTION ("SPURR")

Board of Directors

Steven Adams, SPURR Board President/Clerk, Clovis Unified School District John W. Bitoff, Vice President/Clerk San Francisco Unified School District Carlene Naylor, SPURR Treasurer, Alameda County Office of Education

Paul Bielen, Sonoma County Junior College District Joyce Lopes, Sierra Community College District

John Quinto, Fresno Unified School District Scott Siegel, Ceres Unified School District

Brian Stephens, Northern Humboldt Union High School District William Stephens, Fremont Unified School District

SPURR Officials

Michael Rochman, J.D., Managing Director Alethea Rollins, Accounting Manager

Gary Mingle, CPA, Accounting Consultant

Counsel to SPURR Kronick, Moskovitz, Tiedemann & Girard

Sacramento, California

Bond Counsel Quint & Thimmig LLP

San Francisco, California

Paying Agent Wells Fargo Bank, National Association

San Francisco, California

Underwriter Wells Fargo Institutional Securities, LLC

San Francisco, California

OFFICIAL STATEMENT

$7,500,000 SCHOOL PROJECT FOR UTILITY RATE REDUCTION ("SPURR")

2008 Revenue Anticipation Notes

INTRODUCTION

This Preliminary Official Statement has been prepared under the direction of the School Project for Utility Rate Reduction ("SPURR") in order to furnish information with respect to its sale of certain revenue anticipation notes designated "School Project for Utility Rate Reduction (SPURR), 2008 Revenue Anticipation Notes" (the "Notes") in the principal amount of $7,500,000. The Notes have been authorized pursuant to a resolution adopted by SPURR on September 9, 2008 (the "Resolution"). The Notes will be issued in full conformity with the Constitution and Jaws of the State of California (the "State"), including Article 7.6, Chapter 4, Part 1, Division 2, Title 5 (commencing with Section 53850) of the California Government Code (the "Act") and under such statute are general obligations of SPURR but are payable solely from income, revenue and other moneys of SPURR attributable to the fiscal year commencing on July 1, 2008 (the "Fiscal Year 2008-2009") and legally available therefor.

Proceeds from the sale of the Notes will be used for the purchase of natural gas to be sold by SPURR to member school districts and non-member affiliated public entity participants (members and non-member participants to be referred to hereinafter as jointly, the "Participants" or individually as "Participant"). SPURR may issue the Notes only if the principal of and interest on the Notes will not exceed 85 percent of the estimated amount of the then uncollected moneys legally available for the payment of the Notes.

THE NOTES

Authority for Issuance

The Notes are issued under the authority of the Act and pursuant to the Resolution.

Purpose of Issue

SPURR was formed, among other things, for the purpose of aggregating gas and other utility purchases for its member school districts and community college districts and county offices of education. Subsequent to its formation and commencement of operations, SPURR added to and included in its gas aggregation program certain non-member participants. See "THE SCHOOL PROJECT FOR UTILITY RATE REDUCTION-Non-Member Participants-Continued Program Participation-Other Joint Powers Authority Membership Non-Member Affiliated Public Entity" below. SPURR's non-members currently account for less than 20% of the total gas program by both volume and expenditure.

SPURR has been providing natural gas aggregation services since 1991. SPURR aggregates purchasing for the purpose of reducing and managing price volatility with respect to the net effective cost of gas and other gas-related services supplied to the Participants. By aggregating large purchases of natural gas and related services, i.e., interstate and intrastate transportation of gas, gas storage, billing and reporting, the program is intended to provide the benefits of direct access to wholesale markets, as well as the ability, in management's opinion, to protect against price spikes, and to pass those benefits along to the Participants.

In particular, in response to continued volatility in natural gas prices on a national level and within California, which put a great deal of pressure on Participants' energy budgets, SPURR entered the 2008-2009 program year with fixed price contracts for approximately 35% of projected gas usage of Participants. It is the opinion of SPURR that, as a consequence of this risk-reduction strategy, Participants have a much higher level of budgetary protection than they had in program years prior to the implementation of this fixed price strategy (in the 2001-2002 program year). There can be no assurance as to whether or not these fixed prices will be above or below spot market prices that may be available over the course of the 2008-2009 fiscal year which is the subject of these Notes.

Issuance of the Notes will provide moneys for the timely monthly purchase of natural gas to be sold by SPURR to Participants in the State of California. From FY 1994-1995 through FY 1998-1999, SPURR's billing practice had been to base invoices to Participants on estimated gas purchases by the various Participants in their gas purchase program. This method of billing by SPURR had over the years presented certain accounting difficulties for many of the Participant districts with regard to their ability to recognize exact monthly expenditures on a timely basis. For this reason SPURR decided, after consultation with a representative cross section of its membership and Participants, that it was in the best interest of its Participants to be invoiced for gas purchases on an "actual" gas usage, i.e., metered, rather than an "estimated" gas usage basis. SPURR would thereby most likely incur monthly operating cash flow deficits resulting from the timing of SPURR's payment for gas it purchases on behalf of its Participants and the time that it is reimbursed for the gas following payment by individual Participants on an actual gas delivery basis. SPURR estimates a cash flow gap of up to 90 days or longer from the time that SPURR pays for monthly gas purchases and the point in time when they are paid by individual member and non-member Participant districts for the respective monthly gas amounts. This is why, commencing with the FY 1999-2000 Revenue Anticipation Notes, SPURR provided an interim financing source for their gas delivery programs. The Notes continue this interim financing approach.

Description of the Notes

The Notes will be dated October 30, 2008, and will mature on September 15, 2009. The Notes will bear interest at the rate specified thereon, payable at maturity and computed on a 30-day month/360-day year basis. The Notes will be issued in fully registered form in denominations of $1,000, or any multiple thereof. Principal and interest on the Notes will be payable upon maturity by check or draft of Wells Fargo Bank, National Association (the "Paying Agent"). The Notes will not be subject to redemption prior to maturity.

Book Entry Only System

The Notes will be issued by a book entry system, evidencing ownership of the Notes in principal amounts of $1,000 or integral multiples thereof with no distribution of Notes made to the public. DTC will act as depository for the Notes, which will be immobilized in its custody. The Notes will be registered in the name of Cede & Co., as nominee for DTC. DTC is a limited­purpose trust company organized under the laws of the State of New York, a member of the Federal Reserve system, a "clearing corporation" within the meaning of the New York Uniform Commercial Code, and a "clearing agency" physical registered pursuant to the provisions of Section 17 A of the Securities Exchange Act of 1934, as amended. DTC was created to hold securities of its participants (the "DTC Participants") and to facilitate the clearance and settlement of securities transactions among DTC Participants in such securities through electronic book entry changes in accounts of the DTC Participants, thereby eliminating the need for physical movement of securities certificates. DTC Participants include securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations, some of whom (and/or their representatives) own DTC. Access to the DTC system is also available to others such as banks, brokers, dealers and trust companies that clear through or maintain a

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custodial relationship with a DTC Participant, either directly or indirectly (the "Indirect Participants").

Purchases of the Notes under the book entry system may be made through brokers and dealers who are, or act through, DTC participants. The DTC Participants shall receive a credit balance in the records of DTC. The ownership interest of the actual purchaser of each Note (the "Beneficial Owner") will be recorded through the records of the DTC Participant. Beneficial Owners will receive a written confirmation of their purchase providing details of the Note acquired. Transfers of ownership interests in the Notes will be accomplished by book entries made by DTC and by the DTC Participants who act on behalf of the Beneficial Owners. Beneficial Owners will not receive Notes representing their ownership interest in the Notes. Interest and principal will be paid to DTC, or its nominee, and then paid by DTC to the DTC Participants and thereafter paid by the DTC Participants to the Beneficial Owners when due.

SPURR WILL NOT 1-IA VE ANY RESPONSIBILITY OR OBLIGATION TO SUCH DTC PARTICIPANTS OR THE PERSONS FOR WHOM THEY ACT AS NOMINEES WITH RESPECT TO THE PAYMENTS TO THE DTC PARTICIPANTS OR THE INDIRECT PARTICIPANTS OR BENEFICIAL OWNERS.

Beneficial Owners of the Notes will not receive or have the right to receive physical delivery of such Notes, and will not be or be considered to be owners thereof so long as Cede & Co. is the registered owner of the Notes, as nominee of DTC, references herein to the holders or registered owners of the Notes shall mean Cede & Co. and shall not mean the Beneficial Owners of the Notes.

DTC may determine to discontinue providing its service with respect to the Notes at any time by giving notice to SPURR and discharging its responsibilities with respect thereto under applicable law. Under such circumstances, unless a substitute depository is retained by SPURR, Notes will be delivered and registered as designated by the Beneficial Owners. The Beneficial Owner, upon registration of Notes held in the Beneficial Owner's name, will become the Noteholder.

SPURR may determine that continuation of the system of book entry transfers through DTC (or a successor depository) is not in the best interests of the Beneficial Owners. In such event, Notes will be delivered and registered as designated by the Beneficial Owners. The principal of and interest on the Notes will be paid to DTC or its nominee, Cede & Co., as registered owner of the Notes. Upon receipt of moneys, DTC's current practice is to immediately credit the accounts of the DTC Participants and in accordance with their respective holdings shown on the records of DTC. Payments by DTC Participants and Indirect Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is now the case with municipal securities held for the accounts of customers in bearer form or registered in "street name," and will be the responsibility of such DTC Participant or Indirect Participant and not of DTC or SPURR, subject to any statutory and regulatory requirements as may be in effect from time to time.

Security for the Notes and Available Sources of Repayment

The Notes and the interest thereon are general obligations of SPURR but are payable solely from income, revenue and other moneys received by SPURR during Fiscal Year 2008-2009 and legally available for payment thereof. Certain of said moneys have been specifically pledged to the total payment of the Notes and the interest thereon. As security for the payment of the Notes and the interest thereon, SPURR has pledged (i) an amount equal to $2,500,000 from the first unrestricted revenues received by SPURR in the month of May, 2009, attributable to the month of April, 2009, (ii) an amount equal to $2,500,000 from the first unrestricted revenues received by SPURR in the month of June, 2009, attributable to the month of May, 2009,

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and (iii) an amount equal to $2,500,000, plus an amount sufficient to pay interest on the Notes and any deficiency in the amounts required to be deposited during any prior month, from the first unrestricted revenues received by SPURR in the month of July, 2009, attributable to the month of June, 2009. The principal of the Notes and the interest thereon shall constitute a first lien and charge against, and shall be payable from, the first moneys received by SPURR from the Pledged Revenues and, to the extent not so paid, shall be paid from any other moneys of SPURR lawfully available therefor (all as provided in Sections 53856 and 53857 of the California Government Code).

The Resolution requires SPURR to transfer the Pledged Revenues, during the month such moneys are received, to the Paying Agent for deposit in a special account (the "Repayment Account") and such moneys to be so held until the Notes and all interest thereon are paid or until provision has been made for the payment of the Notes at maturity with interest to maturity. Amounts deposited in the Repayment Account may not be used for any other purpose, although they may be invested in investments, as permitted by Section 53601 of the Government Code of the State of California, and all investments of funds therein shall be deposited with the "Local Agency Pooled Investment Fund ("LAIF") maintained by the Office of the State Treasurer of California.

After such date as the amount of Pledged Revenues deposited in the Repayment Account will be sufficient to pay in full the principal of and interest on the Notes, when due, any moneys in excess of such amount remaining in or accruing to the Repayment Account will be transferred to the Gas Enterprise Fund of SPURR. Until the Notes and all interest thereon are paid or until provision has been made for the payment of the Notes at maturity with interest to maturity, the moneys in the Repayment Account will be applied only for the purposes for which the Repayment Account is created.

Not including Note proceeds, SPURR expects to receive an estimated $63,773,638 in revenues on a cash basis· in Fiscal Year 2008-2009. The amount of revenues needed to pay principal and interest on the Notes will be $7,795,312.50, providing a note coverage of approximately eight times.

THE SCHOOL PROJECT FOR UTILITY RATE REDUCTION

History and Operation

The School Project for Utility Rate Reduction ("SPURR") is a joint exercise of powers authority duly organized and existing under the laws of the State of California. SPURR was formed pursuant to the terms of a Joint Powers Agreement dated as of September 1, 1989 and Title 1, Division 7, Chapter 5 of the Government Code, with the express purpose to seek reduction of utility rates, especially for electricity and natural gas on behalf of its members, in the service areas of Pacific Gas & Electric Company ("PG&E") and the Sacramento Municipal Utility District.

SPURR inaugurated a program of self-procurement of natural gas supplies that are delivered and accounted for by PG&E in February 1992. Participants pay for their natural gas by depositing monthly payments into an escrow account managed by Union Bank of California which, upon direction from SPURR, shall transfer payment amounts to Wells Fargo Bank, National Association, the Paying Agent for the Notes.

No SPURR member participating district has ever defaulted on its gas bill; nor has any payee not been paid.

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Bankruptcy of Pacific, Gas & Electric Company, Inc.

On April 6, 2001, PG&E filed a petition for relief, pursuant to Chapter 11 of the U. S. Bankruptcy Code, in the United States Bankruptcy Court for the Northern District of California (the "Court") requesting protection from its creditors. On December 18, 2003 The Court approved a plan of reorganization for PG&E (the "PG&E Plan") and PG&E emerged from bankruptcy in April 2004 in accordance with the PG&E Plan.

SPURR has no way of predicting how the future disposition of the PG&E Plan shall be implemented and what its ultimate effects on the California energy industry may be, nor, what financial and operational conditions PG&E will face after the implementation of the PG&E Plan or thereafter.

SPURR can therefore give no assurances as to the future ability of PG&E to deliver gas and related services to SPURR or to the Participants.

Board of Directors

SPURR is governed by a nine-person board of directors selected in accordance with the SPURR By-Laws. Non-member Participants are not represented on the board. The principal occupation of each member and officer are as follows:

Steven Adams-Administrator of Assessment and Accountability-Clovis Unified School District-SPURR Board President. Responsible for all mandated State and Federal testing, local assessments, categorical funding, geographic information system analysis, and demographic analysis.

John W. Bitoff-Director, Facilities Management-San Francisco Unified School District-SPURR Board Vice President/Clerk. Responsible for facilities operations and management, including energy conservation programs, for the district.

Carlene Naylor-Associate Superintendent, Business-Alameda County Office of Education-SPURR Treasurer. Responsible for all phases of business management for the office of education including the overall supervision of the business services of each school district in the county.

Paul Bielen-Manager, Buildings and Equipment Maintenance Department-Sonoma County Junior College District. Manages maintenance programs and construction projects, and related staff and contracting issues, for the district.

Joyce Lopes-Director of Finance-Sierra Community College District. Oversees finance, payroll, cashiering, purchasing, food service and the bookstore for the District.

John Quinto-Manager of Environmental Services-Fresno Unified School District. Supervisor of environmental management systems, energy management systems, and safety training for the district.

Scott Siegel-Chief Business Official-Ceres Unified School District. Responsible for business management of the district, including fiscal controls, budgetary planning, and related services.

Brian Stephens-Assistant Superintendent, Business Services-Northern Humboldt Union High School District. Responsible for business management of the district, including fiscal controls, budgetary planning, and related services.

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William Stephens-Assistant Superintendent for Business Services-Fremont Unified School District. Responsible for business management of the district, including fiscal controls, budgetary planning, and related services.

Staff Management

Michael Rochman, J. D.-Managing Director of SPURR. Responsible for managing all phases of SPURR's operation including the natural gas program. Mr. Rochman is an attorney and non-practicing member of the Bar of the State of California. Prior to assuming the role of Managing Director of SPURR, Mr. Rochman practiced law with a firm of attorneys in San Francisco and he specialized in commercial transactions and general law. He received his J.D. from Boalt Hall School of Law of the University of California, Berkeley, and currently resides in Sacramento, California.

Alethea Rollins, Accounting Manager. Responsible for managing day to day operations of the natural gas program including all aspects of accounting, billing and customer service. Alethea works closely with the Finance Manager to prepare for the annual audit.

Gary Mingle, Accounting Consultant. Responsible for managing the day-to-day finance and banking. In addition, Mr. Mingle works closely with accounting manager to maintain the daily accounting books and records. Mr. Mingle is a licensed C.P.A. with a MBA from the University of Chicago.

Member School Districts- Continued Program Participation

There are currently 255 school districts and colleges predominantly in Northern California which are members of SPURR. A complete list of SPURR's membership is contained in Appendix B. Additionally, 200 member and non-member school districts, universities or public agencies in Northern California participate currently in the natural gas program that supports the repayment of these Notes. These participating members are listed in Appendix JfA."

Participants may opt to leave the SPURR gas aggregation program 011 auy July 1 if they provide sufficient notice to SPURR. lu effect, although they enter into multi-year contracts with SPURR for gas aggregation and related services, Participants may nevertheless exit the program ou 120 days notice prior to the start of the next fiscal year. They remain however responsible for their share of gas payment obligations incurred while participating iu the program. Also, auy Participant that has specifically agreed to a longer term arrangement with SPURR will be obligated for the duration of that term. The Participants identified in Appendix A-"SPURR Natural Gas Program Participants" are all under contract at least through June 30, 2009, unless specifically noted iu the appendix.

Non-Member Participants-Continued Program Participation-Other Joint Powers Authority Membership

Non-member Participants currently comprise less than 20% of the total gas aggregation program, by volume and dollars, of the overall gas aggregation efforts of SPURR. It has been the policy of SPURR to permit a limited number of non-member Participants into the gas program. Non-member Participants may be cities, counties, public universities, departments of the state government, Southern California school districts which commenced participation in the gas program during a period in which they were not eligible to join SPURR based on geography, departments of the federal government, and, to a very limited extent (less than 5% of program volume), not-for-profit educational institutions. These non-members are referenced by asterisk in Appendix A-"SPURR Natural Gas Program Participants."

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Non-member Participants may opt to leave the SPURR gas aggregation program in the same manner as Member School Districts (See above - "Member School Districts - Continued Program Participation"). ·

Revenues and Expenses

The audited statements of revenues, expenditures and changes in net assets for the four fiscal years ended June 30, 2007, and the unaudited statement of revenues, expenditures and changes in net assets for the fiscal year ended June 30, 2008, are shown in the following table.

STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN NET ASSETS

for the five fiscal years ended June 30, 2008

2004 2005 2006 2007 2008 (A11dit~d) (Audited) (Audited) (Audi!~d) (Unaudited)

Revenues Operations

Natural gas revenues $25,029,315 $31,169,345 $43,283,358 $44,180,371 $49,337,197 Investing

Interest income 59,704 103,930 228,672 501,472 326,789 Total revenues 25,089,019 31,273,275 43,512,030 44,681,843 49,663,985

Expenditures Operations

Natural gas costs: Gas supply costs 16,304,106 21,062,939 30,200,974 31,238,488 34,872,301 Transportation costs 7,875,847 9,287,760 11,135,606 12,110,415 12,304,370

Total natural gas costs 24,179,953 30,350,699 41,336,580 43,348,903 47,176,671 Management and administration 434,128 505,170 631,072 688,263 1,364,496

24,614,081 30,855,869 41,967,652 44,037,166 48,541,167 Financing

Interest Expense 43,288 66,602 173,995 404,256 295,138 Other expense 29,423 23,475 30,000 46,718 66,962 Bank Charges 34,644 41,896 31,549 49,298 26,964

107,355 131,973 235,544 500,272 389,064

Total expenditures 24,721,436 30,987,842 42,203,196 44,537,438 48,930,231

Net Income (Loss) 367,583 285,433 1,308,834 144,405 733,754

Net assets at beginning of year 975,769 1,343,352 1,628,785 2,937,619 3,082,024

Net assets at end of year $1,343,352 $1,628,785 $2,937,619 $3,082,024 $3,815,778

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SCHOOL PROJECT FOR UTILITY RATE REDUCTION/CUB ESTIMATED GAS USAGE OF TOP 12 PARTICIPANTS

District /Agency

Share of Program

Total 1. San Francisco Unified School District 6.7% 2. Fresno Unified School District 3.8 3. Sacramento City Unified School District 3.1 4. City of Stockton 2.6 5. Clovis Unified School District 2.3 6 Mt. Diablo Unified School District 2.3 7. University of California, Berkeley-Housing 2.2 8. San Jose Unified School District 2.2 9 Modesto City Schools 1.9 10 Peralta Community College 1.8 11. University of the Pacific 1.7 12 San Mateo Community College 1.7

TOP TWELVE TOTAL 32.3% SPURR expects to provide more than 40 million total therms to the program participants

during this fiscal year period. The "Top 12" users are estimated to represent approximately 32.3% of the total program volume.

SPURR's Sources of Revenue

SPURR's primary source of revenues each year is derived from the sale of natural gas to the program Participants who share in the payment of the operational and administrative fees of the program. For fiscal year 2008-2009, SPURR projects that it will have total revenues of approximately $63,773,638 of which more than 99% are from the sale of natural gas and the collection of local transportation charges for gas delivery.

Outstanding Debt

Ao of June 30, 2008, SPURR had no outstanding debt other than its $6,300,000 2007 Revenue Anticipation Notes (the "2007 Notes") which were fully redeemed on October 10, 2008.

Estimated Monthly Cash Flow

SPURR has prepared the accompanying monthly cash-flow statements covering the past fiscal year and projected fiscal year 2008-2009. The projected fiscal 2008-2009 cash flow shows and takes into consideration the Notes. Without the proceeds of the Notes, a cumulative cash­flow deficit of approximately $5,327,000 is anticipated in February, 2009. The anticipated deficit occurs due to the timing of expenditures occurring prior to the timing of the receipts during the fiscal year.

The estimates of amounts and timing of receipts and disbursements in the tables on the following pages are based on certain assumptions and should not be construed as statements of fact. The assumptions are based on present circumstances and currently available information and are believed to be reasonable. The assumptions may be affected by numerous factors, and there can be no assurance that such estimates will be achieved.

The Fiscal Year 2008-09 projected and Fiscal Year 2007-08 actual cash flows are shown on the following pages.

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Projecled or Actual: Projectad'" Projected Projected Projected

Jul-08 Aug-08 Sep-08 Oct-08

Beglnnln!J Caah Balance • 8,478.694 • 8,303.232 • 5,961.982 • 6,060,682 • Sources ()f Cnh:

IUlural Gae R.caJpb -4,827,971J 3,478,/J(}O 3,1D8,DOD 3,25-4,000

lnlernt on Operating Cash 5.663 6.000 2,200 2,300

lnternt on Rntrlcted Cash 7,900 6,500 6,500

RAN!; (2008) Net ProceGdl 7,500,000

Total Sources of Cuh: 4,841.538 3,490,500 3,116,700 10,7511,300

Uses ofC.sh

Natural Gas Supply 2,868,000 3,420,000 2,982,000 3,490,000

Admin Fees 49,000 44.000 36,000 36,000

RANs (2007) Prin Repaymenl 2,100,000 2,100,000

RANs (200711nt Payment 267,750

RANs (2008) Restrictions

Total Uns of Cash: 5,017,000 5,831.150 3,018,000 3,526,000

Ending Cash Balance • 1,303,232 • 5,961,982 • 6,060,612 • 13,290,912 • • July Be~innlng Cash Balance Is ...:tuallass 2007 RANS Raslliction In lhe ...,oo.mt of 2,110,01

Cash accounts: Ope'atlng Cesh $6,203,232 51,494,232 St,592,932 $13,290,982 Ran~ ~2007)

~Hirided 2,1CI0,000 4,467,750 4,417,750 Ran~ (2008)

~nlricted

Ending Cash Balanc1 $8,303.232 $5,961,982 $6,060,682 $13,290 982

Cash Flows and Cash Accounts Projected for the Period

July 1, 2008 through June 30, 2009

Operating Funds

ProJef;ted Projected Projected

Nov-llll Dec-08 Jan-09

13,290,982 • 11,995,382 • 10,157,&82

J,.WI,OIIO 4,207,000 5,684,000

19,400 11,500 14,800

3,420,400 4.224,5(10 5,698,800

4,676,000 6,009,000 8,412,0011

40,000 53.000 65.000

4,716,000 6,062,000 8,477,000

11,995,382 s 10,157,182 • 7,379,6112

Cash ccounto

$11,995,382 510,157,882 $7,379,682

IIUI'95,382 $10,157,812 $7,379,682

Projected

Feb-09

• 7,379,682 •

7,269,000

10,800

7,279,800

8,651,(100

95,000

8,746,000

• 5,913,482 s

$5,913,482

$5,913,482

Total

Projected Projected Projected Projected "' Mar-09 Apr-09 May-09 Jun-09 61Jl)l2009

5,913,482 • 7,070,082 s 9,22G.382 s 7,432,782 • 8,478,6!M

8.461,000 7,825,000 IJ.f>37,00IJ 5.-459,000 6J,Ii31J,975

8,60G 10,300 13.400 7,200 112,500

3,600 24,500

7,500,000

8,489,600 7,835,300 6,65CI,400 5,469,800 7t,273,638

7,232,000 5,597,00(1 5,878,000 3,&72,000 62,887,GOO

101,000 88,000 60.000 78,000 745,000

4,200,000

267,7MI

2,500,000.00 2,500,000 00 5000,000.00

7,333,000 5.685,000 8,438.000 6,25CI,OOO 73,099,750

7,070,082 • 9,220,382 s 7,432,782 • 6,652,582 $ 6,652,582

57.070,082 $9,220,312 54,932,712 54.152,512

2,500,000 2,500,000

$7,070,012 59,220,382 $7,432.782 56,652,582

Actual Actual Actual Jui.07 Aug.07 Sep-07

Beginning Cash Balance s 6,314,885 $ 3,648,606 s 2,083,142 s

Sources of Cash: Natural Gas Receipts 2,856,456 3,123,276 1,779,397 Interest on Operating Cash 19,002 13,285 7,571 Misc. Revenues 221 2,981 6,363 Interest on Restricted Cash RANS (2007) Net Proceeds

Total Sources of Cash; 2,875,679 3,139,542 1,793,331

Uses of Cash: Natural Gas Supply 2,406,802 1,605,006 1,897,116 Admin Fees 128,738 Misc. Expenses 6,418 6,398 RANS (2006) Trust Deposit 3,000,000 3,100,000 RANS (2007) Trust Deposit

Total Uses of Cash: 5,541,958 4,705,006 1,903,514

Ending Cash Balance s 3,648,606 $ 2,083,142 $ 1,972,959 s

School Project For Utility Rate Reduction Cash Flows and Cash Accounts

Actual for the Period July 1, 2007 through June 30, 2008

Operating Funds

Actual Actual Actual Actual Oct-07 Nov-07 Dec-07 Jan-08

1,972,959 s 8,319,079 s 8,677,451 s 7,207,515

2,998,474 2,761,069 4,523,719 7,092,534 18,519 29,777 32,865 29,127

2,499 15,451 18,968 22,138

6,351,597

9,393,227 2,806,297 4,575,552 7,121,661

2,977,120 2,319,866 6,039,154 7,969,250 40,032 111,601 55,669 29,955 16,458 6,334 8,241

3,047,107 2,447,925 6,045,488 8,033,161

8,319,079 s 8,677,451 $ 7,207,515 s 6,296,015

Beginning Balance is reduced by the 2007 RANS cash restriction in the amount of $3,000,000

Cash Accounts

Cash accounts: Operating Cash s 3,648,606 $ 2,083,142 $1,972,959 $8,319,079 $8,677,451 $7,207,515 $6,296,015 Rans (2006)

Restricted 6,000,000 9,100,000 9,103,100 Rans (2007)

Restricted

Ending Cash Balance 9,648,606 11,183,142 11,076,059 8,319,079 8,677,451 7,207,515 6,296,015

Total Actual Actual Actual Actual Actual FYE Feb.08 Mar-08 Ap_!-08 May-08 Jun-08 Jun-08

s 6,296,015 s 1,418,106 s 6,688,845 s 8,154,323 s 6,133,029 $ 6,314,885

6,316,772 7,998,465 4,762,650 4,618,645 4,853,547 53,685,004 9,112 4,254 11,159 4,551 5,514 184,736 3,933 9,301 3,679 5,530 5,626 74,551

77,937 4,810 4,207 109,092 37,121 6,388,718

6,329,817 8,012,020 4,855,425 4,633,536 4,906,014 60,442,100

11,079,537 2,630,766 3,217,282 4,457,447 2,124,102 48,723,448 121,886 105,659 168,400 93,063 431,644 1,256,693

6,303 4,856 4,266 4,320 4,375 97,924 6,100,000

2,100,000 2,100,000 11,207,726 2,741,281 3,389,947 6,654,829 2,560,122 58,278,064

s 1,418,106 s 6,688,845 s 8,154,323 s 6,133,029 $ 8,478,922 s 8,478,922

$1,418,106 $6,688,845 $8,154,323 s 6,133,029 s 8,478,922

2,105,565 2,109,772

1,418,106 6,688,845 8,154,323 8,238,594 10,588,694

CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING SPURR'S REVENUES

Article XIII A of the California Constitution

Section 1(a) of Article XIII A limits the maximum ad valorem tax on real property to one percent of full cash value (as defined in Section 2), to be collected by the counties and apportioned according to law. As recently amended, Article XIII A exempts from the one percent tax limitation any taxes above that level required to pay debt service on voter-approved general obligation bonds for real property or improvements thereon. Section 1(b) provides that the one percent limitation does not apply to ad valorem taxes to pay interest or redemption charges on indebtedness approved by the voters prior to July 1, 1978. Section 2 of Article XIII A defined "full cash value" or, thereafter, "the appraised value of real property when purchased, newly constructed, or a change in ownership has occurred after the 1975 assessment." The full cash value may be adjusted annually to reflect inflation at a rate not to exceed two percent per year, or reduction in the consumer price index or compatible local data, or reduced in the event of declining property value caused by damage, destruction or other factors. The State Board of Equalization has adopted regulations, binding on county assessors, interpreting the meaning of "change in ownership" and "new construction" for purposes of determining full cash value of property under Article XIII A.

Article XIII A required a vote of two-thirds of the qualified electorate to impose special taxes, while generally precluding the imposition of any additional ad valorem, sales or transaction tax on real property. As recently amended, Article XIII A requires the approval of two-thirds of all members of the State Legislature to change any State laws resulting in increased tax revenues.

Future assessed valuation growth under Article XIII A (new construction, change of ownership and two percent annual value growth) will be allocated on the basis of "situs" among the jurisdictions that serve the tax rate area within which the growth occurs. Local agencies and schools will share the growth of "base" revenues from the tax rate area. SPURR is unable to predict the nature or magnitude of future revenue sources which may be provided by the State to replace lost property tax revenues. Section 4 of Article XIII A effectively prohibits the levying of any other ad valorem property tax above the limits set in Section 1, even with the approval of the affected voters.

Article XIII B of the California Constitution

Article XIII B limits the annual appropriations of the State and any city, county, school districts or other political subdivision of the State to the level of appropriations for the prior fiscal year, as adjusted for changes in the cost of living, population and services rendered by the governmental entity. The "base year" for establishing such appropriation limit is the 1978-79 fiscal year and the limit is to be adjusted annually to reflect changes in population, consumer prices and certain increases in the cost of services provided by these public agencies.

Appropriations subject to Article XIII B include generally the proceeds of taxes levied by the State or other entity of local government, exclusive of certain State subventions, refunds of taxes, benefit payments from retirement, unemployment insurance and liability insurance funds. "Proceeds of taxes" include, but are not limited to, all tax revenues and the proceeds to an entity or government from (1) regulatory licenses, user charges, and user fees (but only to the extent such proceeds exceed the cost of providing the service or regulation), and (2) the investment of tax revenues. Article XIII B includes a requirement that if an entity's revenues in any year exceed the amounts permitted to be spent, the excess would have to be returned by revising tax rates or fee schedules over the subsequent two years.

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Unitary Property

Assembly Bill 454 (Chapter 921, Statutes of 1986) (" AB 454") provides that revenues derived from most utility property assessed by the State Board of Equalization ("Unitary Property"), commencing with the 1988-89 fiscal year, will be allocated as follows: (1) each jurisdiction will receive up to 102% of its prior year State-assessed revenue; and (2) if county­wide revenues generated from Unitary Property are less than the previous year's revenues or greater than 102% of the previous year's revenues, each jurisdiction will share the burden of the shortfall or excess revenues by a specified formula. This provision applies to all unitary Property except railroads, whose valuation will continue to be allocated to individual tax rate areas.

The provisions of AB 454 do not constitute an elimination of the assessment of any State­assessed properties nor a revision of the methods of assessing utilities by the State Board of Equalization. Generally, AB 454 allows valuation growth or decline of Unitary Property to be shared by all jurisdictions in a county.

Statutory Limitations

On November 4, 1986, State voters approved Proposition 62, an initiative statute limiting the imposition of new or higher taxes by local agencies. The statute (a) requires new or higher general taxes to be approved by two-thirds of the local agency's governing body and a majority of its voters; (b) requires the inclusion of specific information in all local ordinances or resolutions proposing new or higher general or special taxes; (c) penalizes local agencies that fail to comply with the foregoing; and (d) required local agencies to stop collecting any new or higher general tax adopted after July 31, 1985, unless a majority of the voters approved the tax by November 3, 1988. A final State Court of Appeal decision has declared the majority voter provisions referred to in (d) above to be unconstitutional. A second appellate court decision held unconstitutional both the effective date and majority-vote provisions of Proposition 62. However, the State Supreme Court has ordered that the latter decision to be depublished (making it unavailable for citation as precedent) thus creating uncertainty as to the voter­approval requirement of Proposition 62.

Propositions 98 and 111

On November 8, 1988, the voters approved Proposition 98, an initiative constitutional amendment and statute called "The Classroom Instructional Improvement and Accountability Act" ("Proposition 98"). In addition to adding certain provisions to the Education Code, Proposition 98 also amended Article XIIIB and Section 8 of Article XVI of the State Constitution and added Section 8.5 of Article XVI to the State Constitution, the effects of which are to establish a minimum level of State Funding for school districts, to allocate to school districts, within limits, State revenues in excess of the State's appropriations limit and to exempt such excess funds from school SPURR appropriations limits.

On June 5, 1990, the voters approved Proposition 111 (Senate Constitutional Amendment No. 1) called the "Traffic Congestion Relief and Spending Limit Act of 1990" ("Proposition ll1") which further modified Article XIIIB and Sections 8 and 8.5 of Article XVI of the State Constitution with respect to appropriations limitations and school funding priority and allocation. Article XIIIB, as amended by both Proposition 98 and Proposition 111, is discussed below under "CONSTITUTIONAL LIMITATIONS ON TAXES AND APPROPRIA TION5-Article XIIIB of the California Constitution."

The provisions of Sections 8 and 8.5 of Article XVI, as added and I or amended by Proposition 98 and 111, may be summarized as follows:

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(a) State Funding of Schools (Section 8). Moneys to be applied by the State for the support of school districts must be at a level equal to the greater of the following "tests":

(i) The amount which, as a percentage of the State general fund ("General Fund") revenues which may be appropriated pursuant to Article XIIIB, equals the percentage of General Fund revenues appropriated for school districts in fiscal year 1986-87;

(ii) The amount actually appropriated to school districts in the prior fiscal year from General Fund proceeds and from allocated local proceeds of taxes (excluding any excess state revenues allocated pursuant to Section 8.5), adjusted for changes in enrollment and for the change in the cost of living (operative only in a fiscal year in which the percentage growth in California per capita personal income is less than or equal to the percentage growth in per capita General Fund revenues plus one-half of one percent);

(iii) The amount actually appropriated to school districts in the prior fiscal year from General Fund proceeds and from allocated local proceeds of taxes (excluding any excess state revenues allocated pursuant to Section 8.5) adjusted for changes in enrollment and for the change in per capita General Fund revenues, and, in addition, an amount equal to one-half of one percent times the prior year appropriations (excluding any excess state revenues) adjusted for changes in enrollment (operative only in a fiscal year in which the percentage growth in California per capita personal income is greater than the percentage growth in per capita General Fund revenues plus one-half of one percent).

If the third test is used in any year, the difference between the third test and the second test will become a "credit" to schools which will be paid in future years when the General Fund revenue growth exceeds personal income growth.

The State Legislature by a two-thirds vote of both houses, with the Governor's concurrence, may suspend for one year the minimum funding provisions for school districts as provided for in Section 8.

(b) Allocations to the State School Fund (Section 8.5). In addition to the amounts applied to school districts under the tests discussed above, the State Controller is directed to allocate available excess state revenues (pursuant to Article XIIIB) to the State School Fund. However, no such allocation is required at any time that the Director of Finance and the Superintendent of Public Instruction mutually determine that current annual expenditures per student equal or exceed the average annual expenditures per student and the average class size equals or is less than the average class size of the 10 states with the lowest class size.

Such allocations do not constitute appropriations subject to Article XIIIB limitations and are to be made in an equal amount per enrollment.

STATE OF CALIFORNIA FINANCES AND SUPPORT OF SCHOOL EDUCATION

General

Public school districts in California are dependent on revenues from the State for a large portion of their operating budgets. California school districts receive an average of about 55 percent of their operating revenues from various State sources. The primary source of funding for school districts is the revenue limit, which is a combination of State funds and local property taxes. State funds typically make up the majority of a district's revenue limit. School districts also receive substantial funding from the State for various categorical programs.

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The availability of State funds for public education is a function of constitutional provisions affecting individual school district revenues and expenditures, the condition of the State economy (which affects total revenue available to the State general fund), and the annual State budget process.

The State requires that from all State revenues there first shall be set apart the moneys to be applied for support of the public school system and public institutions of higher education. California school districts receive a significant portion of their funding from State appropriations. As a result, decreases in State revenues may significantly affect appropriations made by the legislature to school districts.

The following information concerning the State's budgets for the current and most recent preceding years has been compiled from publicly-available information provided by the State. Neither SPURR nor the Underwriter is responsible for the information relating to the State's budgets provided in this section. Further information is available from the Public Finance Division of the State Treasurer's Office.

The Budget Process

The State's fiscal year begins on july 1 and ends on june 30 of the following year. The annual budget is proposed by the Governor by january 10 for the next fiscal year. In May the Governor offers a revision to the proposed budget and a final budget act must be adopted by a two-thirds vote of each house of the Legislature no later than June 15, although this deadline is routinely breached. The budget becomes law upon the signature of the Governor, who retains veto power over specific items of expenditure.

As required by Proposition 58, beginning with fiscal year 2004-05, the Legislature may not pass a budget bill in which State general fund expenditures exceed estimated State general fund revenues and fund balances at the time of the passage.

Under the State Constitution, money may be drawn from the Treasury only through an appropriation made by law. The primary source of annual expenditure appropriations is the annual budget act, however, appropriations may be included in other legislation. Bills containing State general fund appropriations must be approved by a two-thirds majority vote in each house of the Legislature and be signed by the Governor, except bills containing appropriations for K-12 schools or community colleges ("K-14 education"), which require a simple majority vote, and continuing appropriations, which are available without regard to the fiscal year and may be provided by statute or the State Constitution. Funds necessary to meet an appropriation are not required to be in the State Treasury at the time an appropriation is enacted; revenues may be appropriated in anticipation of their receipt.

Recent State Budgets

The following information concerning the State's budgets for the current and most recent preceding years has been corn piled from publicly-available information provided by the State. Neither SPURR nor the Underwriter is responsible for the information relating to the State's budgets provided in this section. Further information is available from the Public Finance Division of the State Treasurer's Office.

The Budget Process. The State's fiscal year begins on july 1 and ends on june 30. The annual budget is proposed by the Governor by january 10 of each year for the next fiscal year (the "Governor's Budget"). Under State law, the annual proposed Governor's Budget cannot provide for projected expenditures in excess of projected revenues and balances available from

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prior fiscal years. Following the submission of the Governor's Budget, the Legislature takes up the proposal.

Under the State Constitution, money may be drawn from the Treasury only through an appropriation made by law. The primary source of the annual expenditure authorizations is the Budget Act as approved by the Legislature and signed by the Governor. The Budget Act must be approved by a two-thirds majority vote of each House of the Legislature. The Governor may reduce or eliminate specific line items in the Budget Act or any other appropriations bill without vetoing the entire bill. Such individual line-item vetoes are subject to override by a two­thirds majority vote of each House of the Legislature.

Appropriations also may be included in legislation other than the Budget Act. Bills containing appropriations (except for K-14 education) must be approved by a two-thirds majority vote in each House of the Legislature and be signed by the Governor. Bills containing K-14 education appropriations only require a simple majority vote. Continuing appropriations, available without regard to fiscal year, may also be provided by statute or the State Constitution.

Funds necessary to meet an appropriation need not be in the State Treasury at the time such appropriation is enacted; revenues may be appropriated in anticipation of their receipt.

Recent State Budgets. Certain information about the State budgeting process and the State Budget is available through several State sources. A convenient source of information is the State's website, where recent official statements for State bonds are posted. The references to internet websites shown below are shown for reference and convenience only, the information contained within the websites has not been reviewed by SPURR and is not incorporated herein by reference.

(i) The State Treasurer Internet home page at www.treasurer.ca.gov, under the heading "Bond Information," posts various State Official Statements, many of which contain a summary of the current State Budget, past State Budgets, and the impact of those budgets on school districts in the State.

(ii) The California State Treasurer's Office Internet home page at www.treasurer.ca.gov, under the heading "Financial Information," posts the State's audited financial statements. In addition, the "Financial Information" section includes the State's Rule 15c2-12 filings for State bond issues. The "Financial Information" section also includes the "Overview of the State Economy and Government, State Finances, State Indebtedness, Litigation" from the State's most current Official Statement, which discusses the State budget and its impact on school districts.

(iii) The California Department of Finance's Internet home page at www.dof.ca.gov, under the heading "California Budget," includes the text of proposed and adopted State Budgets.

(iv) The State Legislative Analyst's Office prepares analyses of the proposed and adopted State budgets. The analyses are accessible on the Legislative Analyst's Internet home page at www.lao.ca.gov under the heading "Products."

THE STATE HAS NOT ENTERED INTO ANY CONTRACTUAL COMMITMENT WITH SPURR OR THE OWNERS OF THE NOTES TO PROVIDE STATE BUDGET INFORMATION TO THE DISTRICT OR THE OWNERS OF THE NOTES. ALTHOUGH THEY BELIEVE THE STATE SOURCES OF INFORMATION LISTED ABOVE ARE RELIABLE, THE DISTRICT ASSUMES NO RESPONSIBILITY FOR THE ACCURACY OF THE STATE BUDGET INFORMATION SET FORTH HEREIN OR INCORPORATED BY REFERENCE HEREIN.

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LEGAL MATTERS

Litigation

No litigation is pending or, to the best of the knowledge of SPURR, threatened concerning the validity of the Notes, and an opinion, representation or certificate of SPURR's Counsel to that effect will be given at the time of the original delivery of the Notes. SPURR is not aware of any litigation pending or threatened questioning the political existence of SPURR or contesting SPURR's ability to collect or receive pledged revenues or contesting SPURR's ability to issue and retire the Notes.

Legality for Investment

Under provisions of the California Financial Code, the Notes are legal investments for commercial banks in California to the extent that the Notes, in the informed opinion of the bank, are prudent for the investment of funds of its depositors and are eligible to secure deposits of public moneys in the State of California under provisions of the California Government Code.

TAX MATTERS

Federal tax law contains a number of requirements and restrictions which apply to the Notes, including investment restrictions, periodic payments of arbitrage profits to the United States, requirements regarding the proper use of note proceeds and certain other matters. SPURR has covenanted to comply with all requirements that must be satisfied in order for the interest on the Notes to be excludable from gross income for federal income tax purposes. Failure to comply with certain of such covenants could cause interest on the Notes to not be excludable from gross income under section 103 of the Internal Revenue Code of 1986, as amended (the "Code") for federal income tax purposes retroactively to the date of issuance of the Notes.

Subject to SPURR's compliance with the above-referenced covenants, under present law, in the opinion of Quint & Thimmig LLP, San Francisco, California, Bond Counsel, interest on the Notes is excludable from the gross income of the owners thereof for federal income tax purposes under section 103 of the Code and under section 55 of the Code is not included as an item of tax preference in computing the federal alternative minimum tax for individuals and corporations. Interest on the Notes is taken into account, however, in computing an adjustment used in determining the federal alternative minimum tax for certain corporations and in computing the branch profits tax on certain corporations.

In rendering its opinion, Bond Counsel will rely upon certifications of SPURR with respect to certain material facts solely within SPURR's knowledge. Bond Counsel's opinion represents its legal judgment based upon its review of the law and the facts that it deems relevant to render such opinion and is not a guarantee of a result.

Purchasers should be aware that the Internal Revenue Service has issued Notice 94-84, which may have federal income-tax consequences with respect to the Notes. This Notice provides generally that in the case of short-term tax-exempt obligations (such as the Notes), the Internal Revenue Service is studying whether interest payable at maturity on the obligations should or should not be included in the stated redemption price at maturity for purposes of the rule that original-issue discount represents the excess of stated redemption price at maturity over issue price.

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Notice 94-84 states that until the Internal Revenue Service provides further guidance, taxpayers may treat stated interest on certain short-term obligations, such as the Notes, either as includable in stated redemption price at maturity or as not included in stated redemption price at maturity. A taxpayer, however, must treat stated interest payable at maturity on all short­term tax-exempt bonds in a consistent manner. A short-term tax-exempt bond is defined as a tax-exempt bond with a term that is not more that one year from the date of issue.

Purchasers of the Notes are cautioned that the opinion of Bond Counsel does not identify the amount of interest that is excluded from gross income for federal income-tax purposes.

Purchasers of the Notes should consult their tax advisors regarding effects of Notice 94-84 upon individual tax circumstances.

There are or may be pending in the Congress of the United States legislative proposals, including some that carry retroactive effective dates, that, if enacted, could alter or amend the federal tax matters referred to above or adversely affect the market value of the Notes. It cannot be predicted whether or in what form any such proposal might be enacted or whether, if enacted, it would apply to Notes issued prior to enactment. Prospective purchasers of the Notes should consult their own tax advisors regarding any pending or proposed federal tax legislation. Bond Counsel expresses no opinion regarding any pending or proposed federal tax legislation.

The Internal Revenue Service (the "Service") has an ongoing program of auditing tax­exempt obligations to determine whether, in the view of the Service, interest on such tax­exempt obligations is includable in the gross income of the owners thereof for federal income tax purposes. It cannot be predicted whether or not the Service will commence an audit of the Notes. If an audit is commenced, under current procedures the Service will treat SPURR as the taxpayer and the Noteholders may have no right to participate in such procedure. The commencement of an audit could adversely affect the market value and liquidity of the Notes until the audit is concluded, regardless of the ultimate outcome.

In the further opinion of Bond Counsel, interest on the Notes is exempt from California personal income taxes.

Ownership of the Notes may result in other state and local tax consequences to certain taxpayers. Bond Counsel expresses no opinion regarding any such collateral consequences arising with respect to the Notes. Prospective purchasers of the Notes should consult their tax advisors regarding the applicability of any such state and local taxes.

RATING

The Notes are rated "MIG 1" by Moody's Investors Service. Such rating reflects only the view of Moody's Investors Service. An explanation of the significance of such rating may be obtained from the Moody's Investors Service, 99 Church Street, New York, New York 10007, (212) 553-0300. There is no assurance that such rating will continue for any given period of time or that it will not be revised downward entirely by the rating organization if, in the judgment of said organization, circumstances so warrant. Any such downward revision or withdrawal of such rating may have an adverse effect on the market price of the Notes.

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UNDERWRITING

The Notes are to be purchased by Wells Fargo Institutional Securities, LLC (the "Underwriter"). The Underwriter has agreed, subject to certain terms and conditions set forth in the Note Purchase Agreement, to purchase the Notes at a price of$7,492,950.00, representing the principal amount of the Notes ($7,500,000.00), less an Underwriter's discount of $30,750.00, plus an original issue premium of $23,700.00. The Underwriter will purchase all the Notes if any are purchased. The Notes may be offered and sold to dealers (including dealers depositing said Notes into investment trusts) and others at prices lower than the initial public offering price, and the public offering price may be changed from time to time by the Underwriter.

MISCELLANEOUS

The execution of this Official Statement has been authorized by SPURR.

At the time of delivery and payment for the Notes, an authorized representative of SPURR will deliver a certificate stating that to the best of his knowledge this Official Statement does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements herein, in light of the circumstances under which they were made, not misleading. Such certificate will also certify that to the best of his knowledge, from the date of this Official Statement to the date of such delivery and payment, there was no material adverse change in the information set forth herein.

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SCHOOL PROJECT FOR UTILITY RATE REDUCTION

By Is! Michael Rochman Managing Director

APPENDIX A

LIST OF SPURR NATURAL GAS PROGRAM PARTICIPANTS

Appendix A

(]SPURR Scbunl Pn1jcct fol" IJtiliry Rail' Rcducliun

Natural Gas Program Participants, as of July 1, 2008

'ckerman Elementary School District 'lameda County Superintendent of Schools "ameda Unified School District 'lbany Unified School District "urn Rock Elementary School District 'rcata School District 'twater Elementary School District ~ellevue Union School District ~rkeley Unified School District kentwood Union School District 3urlingame School District 3yron Union School District :alaveras Unified School District :aJifornia Maritime Academy* :alifornia State University, Monterey Bay* :ampbell Union High School District :ampbell Union School District :armel Unified School District :astra Valley Unified School District :enter Unified School District :entral Marin Sanitation Agency* :entral Unified School District :eres Unified School District :habet-Los Positas Community College* ::howchilla Union High School District :hualar Union Elementary School District :innabar Elementary School District :ity of Stockton* :Iavis Unified School District :Oiusa Unified School District :Ontra Costa Community College District :orrectional Training Facility, (CTC)* :ounty of Sonoma* :ounty of Tulare* :upertino Union School District )avis Joint Unified School District )elhi School District )epartment of Motor Vehicles, Northern california* )ixie School District )ixon Unified School District Jos Palos Oro Lorna Joint Unified School )ry Creek Joint Elementary School District )ublin Unified School District :mpire Union School District :scalon Unified School District :ureka City Schools :ureka Union School District :vergreen School District =airfield - Suisun Unified School District =irebaugh-Las Deltas Unified School District =olsom Cordova Unified School District =ortuna Union High School District =owler Unified School District =remont Unified School District =remont Union High School District =resno Unified School District :;eyserville Unified School District :;olden Plains Unified School District :;onzales Unified School District :;reenfield Union School District --tayward Unified School District ,illsborough City School District rlumboldt County Office of Education Hydesville Elementary School District Jacoby Creek School District Jefferson Elementary School District

Kentfield Elementary School District Kern Community College District* Kern County Superintendent of Schools* Kern High School District* King City Union School District Lakeside Union Elementary School District* Liberty Union High School District lincoln Unified School District linden Unified School District live Oak Union High School District livermore Valley Joint Unified School District Lodi Unified School District Loleta Union School District Loomis Union School District Los Banos Unified School District Los Gatos - Saratoga Joint Union High School Dist Los Gatos Union Elementary School District Madera County Office of Education Madera Unified School District Manteca Unified School District Maricopa Unified School District* Marin Community College District Marin County Office of Education Maxwell Unified School District Me Gee Correctional Training Facility* Mckinleyville Union School District Mendocino Lake Community College Merced City School District Merced County Office of Education Merced Union High School District Metropolitan Education District Midway School District Millbrae School District Milpitas Unified School District Mill Valley School District Modesto City Schools Monterey County Office of Education Morgan Hill Unified School District Mt Diablo Unified School District Napa Valley Unified School District Natomas Unified School District Nevada Joint Union High School District New Haven Unified School District Newark Unified School District Northern Humboldt Union High School District Novato Unified School District Oak Grove Union School District Oakdale Joint Unified School District Oroville City Elementary School District Oroville Union High School District Pacific Grove Unified School District Pajaro Valley Unified School District Panama-Buena Vista Union School District Patterson Joint Unified School District Peralta Community College Petaluma City Joint Union School District Pittsburg Unified School District Placer Union High School District Red Bluff Joint Union High School District Redwood City School District Redwoods Community College District Riverbank School District Rocklin Unified School District Rohnerville School District Roseland School District Roseville City School District

*Non-member school district university or public agency

Roseville Joint Union High School District Ross School District Sacramento Unified School District Salinas City Elementary School District San Bruno Park School District San Francisco Unified School District San Jose State University, Student Union* San Jose Unified School District San Leandro Unified School District San Lorenzo Valley Unified School District San Mateo County Community College Dist San Mateo Union High School District San Mateo~Foster City School District San Rafael City Schools San Rafael Elementary District San Ramon Valley Unified School District Santa Clara Unified School District Santa Cruz City Schools Santa Cruz County Office of Education Santa Rita Union School District Scotts Valley Unified School District Selma Unified School District Sierra Community College Shandon Unified School District* Shasta County Office of Education Solano County Office of Education Sonoma County Junior College District Sonoma County Office of Education Sonoma Valley Unified School District South Bay Elementary School District St. Helena Unified School District Stanislaus Union School District State Center Community College Stockton Unified School District Sylvan Union School District Taft City School District* Tamalpais Union High School District The california Medical Facility* Tracy Unified High School District Trona Joint Unified School District Turlock Unified High School District Twin Rivers Unified School District UC Davis Medical Center* Ukiah Unified School District University of california, Berkeley* University of California, Berkeley-Housing* University of california, Davis- Campus* University of california, San Francisco* University of Pacific* Vacaville Unified School District Vallejo Unified School District Washington Colony School District Washington Unified School District West Contra Costa Unified School District West Kern Community College* West Valley/Mission College Western Placer Unified School District Wheatland School District Williams Unified School District Willits Unified School District Windsor Unified School District Winton Elementary School District Woodland Unified School District Wright Elementary School District Yolo County Office of Ed

APPENDIXB

LIST OF CURRENT MEMBERSHIP OF SPURR

Appendix B

<ckerman Elementary School District 1lameda County Superintendent of Schools 1lameda Unified School District 1lbany Unified School District 1lum Rock Union Elementary School District 1ntelope School District \ntioch Unified School District \rcata School District \rena Union Elementary School District ~twater Elementary School District lallico·Cressey Elementary School District lellevue Union School District lerkeley Unified School District lerryessa Union School District lrentwood Union School District luckeye Union Elementary School District luena Vista Elementary School lurlingame School District lutte Community College lurnt Ranch Elementary School District !yron Union School District ~alaveras Unified School District ~aruthers Union High School District ~astra Valley Unified School District ~amino Union School District ~ampbell Union School District ~ampbell Union High School District ~armel Unified School District ~enter Unified School District ~antral Unified School District. Fresno ~eres Unified School District ~habot·Los Positas Community College ~hico Unified School District ~hicago Park School District :howchilla Union High School District :hua\ar Union Elementary School District :::howchilla Union High School District :innabar Elementary School District :oalinga-Huron Unified School District ::levis Unified School District ::oarsegold Union School District ::antra Costa Community College ::olusa Unified School District ::upertino Union School District Davis Jt Unified School District Del Paso Heights School District Delhi School District Dixie School District Dixon Unified School District Jos Palos Oro Lama Jt Unified School District Jouglas City Elementary School District Jry Creek Jt Elementary School District Jublin Unified School District =:lk Grove Unified School District =:mpire Union School District Escalon Unified School District Eureka Union School District Eureka City Schools Evergreen School District Evergreen Union Elementary School District Fairfield- Suisun Unified School District Fannersville Unified School District Firebaugh-Las Deltas Unified School District Folsom Cordova Unified School District Fortuna Union High School District Fowler Unified School District Fremont Union High School District Fremont Unified School District Fresno Unified School District Gateway Unified School District Gerber Union Elementary School District Gilroy Unified School District Geyserville Unified School District Gold Oak Union School District Gold Trail Union School District Golden Feather Union School District Golden Plains Unified School District Gonzales Unified School District Grant Jt Union High School District Grant Elementary School District Greenfield Union School District Gustine Unified School District Happy Valley School Hartnell Community College Hayward Unified School District Hillsborough City School District

.:..- ·--

JPA Membership c:is of July 1, 2008

Horicon Elementary School District Humboldt County Office of Education Hydesville Elementary School District lgo-Ono Platina Union School District Jacoby Creek School District Jefferson Elementary School District John Swett Unified School District Junction School District Kentfield Elementary School District Kings Canyon Unified School District King City Union School District Klamath-Trinity Jt Unified School District Kneeland School District La Honda·Pescadero Unified School District lake Tahoe Unified School District larkspur Elementary Schoof District Laytonville Unified School District LeGrand Union Elementary School District Liberty Union High School District Lincoln Unified School District Linden Unified School District Live Oak Elementary School District Livermore Valley Joint Unified School District Lodi Unified School District Loleta Union School District Loomis Union School District Los Banos Unified School District Los Gatos Union Elementary School District Los Gatos-Saratoga Jt Union High School District Los Molinos Unified School District Madera County Office of Education Madera Unified School District Manteca Unified School District Maple Creek Elementary School District Marin Community College District Marin County Office of Education Mariposa County Unified School District Maxwell Unified School District McKinleyville Union School District Mendota Unified School District Merced County Office of Education Metropolitan Education District Mi!lbrae School District Milpitas Unified School District Mendocino Lake Community College Merced City School District Merced Union High School District Modesto City Schools Monterey County Office of Education Monterey Peninsula Unified School District Morgan Hill Unified School District Mt Diablo Unified School District Napa Valley Unified School District Natomas Unified School District Nevada County Office of Education Nevada Jt Union High School District New Haven Unified School District Newark Unified School District Nicasio Elementary Schoo\ District North Monterey County Unified School Disrict Northern Humboldt Union High School District Novato Unified School District Oak Grove Union School District Oakdale Jt Union High School District Oakland Unified School District Oroville City Elementary School District Oroville Union High School District Outside Creek School District Pacific Grove Unified School District Pajaro Valley Unified School District Parlier Unified School District Patterson Jt Unified School District Peninsula Union Elementary School District Peralta Community College Petaluma City- Elementary & Jt Union School District Pittsburg Unified School District Placer Union High School District Plainsburg Union Elementary School District Planada Elementary School District Pleasant Valley School District, Penn Valley Pleasanton Unified School District Point Arena Jt Union High School Pollock Pines School District Red Bluff Jt Union High School District Redwood City School District

Redwoods Community College District Reed Union School District Reef-Sunset Unified School District Rio Dell Elementary School District Rio linda Union School District Ripon Unified School District Riverbank School District Robia Elementary School District Rocklin Unified School District Rohnerville School District Roseland School District Roseville City School District Roseville Jt Union High School District Ross School District Sacramento City Unified School District Salinas Union High Schoof District Salinas City Elementary School District San Antonio Union School District San Ardo Union Elementary School District San Bruno Park School District San Francisco Unified School District San Jose Unified School District San leandro Unified School District San Lorenzo Valley Unified School District San Lucas Union School District San Joaquin Delta Community College San Mateo County Community College District San Mateo Union High School District San Mateo-Foster City School District San Rafael City -Elementary & High School District San Ramon Valley Unified School District Sanger Unified School District Santa Clara County Office of Education Santa Clara Unified School District Santa Cruz City Schools Santa Cruz County Office of Education Santa Rita Union School District Scotts Valley Unified School District Sebastopol Union Elementary School Distr Sierra Community College Sierra Sands Unified School District Selma Unified School District Shasta County Office of Education Shoreline Unified School District Solano County Office of Education Soledad Union Elementary School District Sonoma County Junior College District Sonoma Valley Unified School District South Bay Elementary School District Southam Humboldt Jt Unified Schoo! District St. Helena Unified School District Stanislaus Union School District State Center Community College Stockton Unified School District Sylvan Union School District Tahoe-Truckee Unified School District Tamalpais Union High School District Tracy Unified High School District Travis Unified School District Trinidad School District Twin Rivers Unified School District Tulare Union High School District T utelake Basin Jt Unified School District Turlock Union High School District Ukiah Unified School District Upper lake Union High School District Vallejo Unified School District Vacaville Unified School District Washington Colony School District Washington Unified School District Waterford Elementary School District West Contra Costa Unified School Oistric West Fresno Elementary School District West Valley/Mission College Western Placer Unified School District Wheatland School District Whitmore Union Elementary School Distric Williams Unified School District Willits Unified School District Windsor Unified School District Winton Elementary School District Wright Elementary School District Woodland Unified School District Yolo County Office of Education

' __ ,

APPENDIXC

AUDITED FINANCIAL STATEMENTS OF SPURR FOR THE FISCAL YEARS ENDED JUNE 30, 2006, AND JUNE 30, 2007

Appendix C

SCHOOL PROJECT FOR UTILITY RATE REDUCTION

(SPURR)

(A Joint Powers Authority)

ANNUAL REPORT

FOR THE FISCAL YEARS ENDED JUNE 30, 2007 & 2006

TABLE OF CONTENTS

Managing Director's Letter

Management's Discussion and Analysis of Financial Condition and Results of Operations

Financial Statements

Statements of Net Assets

Statements of Activities

Statements of Cash Flows

Notes to Financial Statements

Independent Auditors' Report

1

2-6

7

8

9

10- 17

18

PURR School Project for Utility Rate Reduction

MANAGING DIRECTOR'S LETTER

To the Board \lf Directors School Project for Utility Rate Reduction Concord, Calitomia

During the fiscal year ending June 30, 2007, the School Project for Utility Rate Reduction ("SPURR") continued to serve our participating agencies with the highest levels of expertise and professionalism.

Our Natural Cas Procurement Program provides our participants with access to the wholesale natural gas market that W<Juld otherwise be unavailable to them. We usc the aggregated market presence of thousands of accounts and <Jur relationships with multiple wholesaler suppliers to get the best prices and terms for our panicipants. We manage price risk, improve budgetary stability, and provide market expertise and infomJation for our participants at levels not offered by Califomia's regulated gas utilities. While utilities generally buy gas on spot markets. and always pass all price and volatility risk on to their commodity consumers, our program limits risk under fixed price agreements for significant portions of our supply. We publish much more information about olir price commitments than any Califomia utility. so our participants can budget m()re effectively and can improve their financial results.

Our financial performance and customer service functions continue to evolve to meet our constituents' needs. We continue to improve our billing functions and to provide new levels of infonnation to our program panicipants. We monitor and evaluate our intemal accounting control procedures, always alert for possible improvements. We manage our receivables and payables closely, to minimize program costs.

In October 2007, SPURR repaid its Revenue Anticipation Notes ("RANs") issued one year earlier, as scheduled. Later that month, SPURR issued another series of RANs, in the principal amount of$6.3 million, with a coupon rate of 4.25% per annum. This favorable.rate was a result of the ''Investment Grndc I" rating of our RANs by Moody's Investors Services. The .RANs afford SPURR's management flexibility in cash management practices. Excess funds are invested in government securities through Wells Fargo Bank, Union Bank ofCalifomia, or the Local Agency Investment Fund (run by the State Treasurer).

SPURR also operates other programs to help schools and public agencies control utility costs.

In our Utilily Expense Management Program, SPURR builds. hosts, and maintains a database of utility costs- gas, p()wer, water- as invoiced to program participants, whether the services were supplied by SPURR or not.' The database is available over the.Wcb anil can be used to audifutility bills. spot conservation <>pportunitics, bring accountability to conservation activities, allocate costs. create accurate budgets, and Perform other key management functions.

Under our Voice and Data Program, we can provide significant savings and advice on local and long distance telephone, wireless phone, e-mail, WiFi Internet access, and other services. We offer customized plans to meet the needs and budgets of our constituents.

We also condtkt Regulatory Representation on behalf of our constituents. We appear in proceedings at the Public Utilities Commission and in Legislative hearings. Ou~ recent efforts have focused on reducing natural gas Transportation rates lor our participants and on establishing the right of electricity customers to choose their service providers.

We look forward to serving our members in the year ahead.

January I 0, 2008 Michael Rochman SPURR Managing Director

1430WillowPass Road, Suite 240 ·Concord, CA 94520 • (925) 743-1292 • Fax (925) 743-1014

Visit our website: ,www.spurr.org

SCHOOL PROJECT FOR UTILITY RATE REDUCTION Management's Discussion and Analysis of

Financial Condition and Results of Operations Fiscal Years Ended June 30, 2007 & 2006

Overview. History and Operation

The School Project for Utility Rate Reduction ("SPURR") is a joint exercise of powers authority formed pursuant to the terms of a Joint Powers Agreement dated as of September I, 1989 under Title 1, Division 7, and Chapter 5 of the California Govenunent Code. SPURR's purpose is to seek reduction and control of utility costs on behalf of its members.

In 1992, SPURR inaugurated a program of self-procurement of natural gas supplies that are delivered and accounted for by Pacitic Gas & Electric Company ("PG&E"). Participants in the SPURR gas program pay for their natural gas by depositing monthly payments into an escrow account managed by Union.Bank ofCalifomia. No SPURR member or participant has ever defaulted on.its gas purchases; nor has any vendor not been paid.

Currently about 200 public agencies in Northern California participate in the SPURR "core" natural gas program for service to approximately 3,400 sites; also 23 public agencies partiCipate in the "noncore" gas program for service to 27 sites. SPURR gas pro.[,>Trun participants ("Participants") enter into multi­year contracts witli SPURR for gas aggregation and related services, but they may nevertheless exit the program on 120 days notice prior to the start ofthe next fiscal year (unless they have specifically agreed to a longer tenn commitment).

~ - .t.-

SCHOOL PROJECT FOR UTILITY RATE REDUCTION Management's Discussion and Analysis of

Financial Condition and Results of Operations Fiscal Years Ended June 30, 2007 & 2006

SPURR's primary source of revenues each year is derived from the sale of natural gas to Participants who share in the payment of the operational and administrative fees of the program. For fiscal year 2007/2008 SPURR projects total revenues of approximately $45,000,000 from the sale of natural gas and the collection of local transportation charges for gas delivery.

As of June 30, 2007, SPURR had no outstanding debt other than .its 2006 Revenue Anticipation Notes in the principal amount of $8,750,000, which were fully redeemed on the stated due date October 4, 2007. A new Series of 2007 Revenue Anticipation Notes, in the principal amount of S6,300,000, were issued on October II, 2007, and are due for repayment on October I 0, 2008.

Annual Report Presentation

This annual report must be read in its entirety-Managing Director's Letter, Management's Discussion and Analysis, financial statements and related notes and Independent Auditors' Report-to obtain a thorough undtJrstanding of the program, its financial condition and results of operations as of, or for the year ended June 30, 2007. This section, Management's Discussion and Analysis, provides an overview of SPURR's financial activities for the fiscal year ending June 30, 2007.

Condensed Statement of Net Assets

The Statement of Net Assets includes all assets and liabilities using the accrual basis ofaccounting, similar to accounting methods used by most private-sector entities. Net assets are the difference between total assets and total liabilities.

(in thousands)

2007 2006 Chan~

ASSETS Cash and equivalents $ 1,467 $ 1,382 6.2% Accounts receivable 5,257 4,097 28.3% Advances on behalf of CUB 234 -100.0%

Operating imbalance 198 194 2.0%

Investments 8,427 6,920 21.8%

Gas in storage 1,827 1,438 27.0%

Total assets s 17,176 $ 14,265 20.4%

LIABILITIES

Accounts payable and accrued liabilities $ 3,523 $ 3,103 13.5%

Revenue anticipation notes 8,750 6,890 27.0%

Deferred revenue 1.821 1 335 36.4%

Total liabilities $ 14,094 $ 11.32R 24.1%

NET ASSETS $ 3,082 s 2.937 4.9%

-3-

SCHOOL PROJECT FOR UTILITY RATE REDUCTION Management's Discussion and Analysis of

Financial Condition and Results of Operations Fiscal Years Ended June 30, 2007 & 2006

Condensed Statement of Net Assets (continued)

All assets and liabilities are cuiTent. Net assets of$3,082,000 on June 30,2007, and $2,937,000 on June 30, 2006 are not reserved or designated and may be used for any matters authorized in the bylaws or as otherwise approved by the Board of Directors. The major year-to-year changes in the components of net assets are due primarily to the timing of payments to vendors and the increase in natural gas pricing volatility.

Condensed Statement of Revenues and Expenditures

The Statement of Revenues and Expenditures presents the revenues received by SPURR along with costs associated in generating the revenues and other costs of managing and financing the program.

(in thousands)

2007 2006 Change

Gas revenues $ 44,180 $ 43,308 2.0%

Gas costs 43,349 41 337 4.9%

Margin s 831 $ 1,971 -57.8%

Management costs 688 631 9.0%

Interest expense 404 174 132.1%

Interest income (501) (229) 118.7%

Other expenses 96 87 10.35%

Net income $ 144 $ 1.308 -88.9%

As a general rule, SPURR's gas prices are based on the wholesale cost of natural gas in Northern California, including related costs such as transportation, gas storage, management fees, plus anticipated working capital.requirements. SPURR's gas revenues also include "local transportation" costs owed by consumers to PG&E and collected by SPURR forremittance to PG&E.

During the fiscal year ended June 30, 2007, SPURR's core program had a volume of 34.0 million therms compared to a volume of31.0 million therms for the fiscal year ended June 30, 2006. Non core program volumes for the fiscal year ended June 30, 2007 were 5.7 million therms, compared to 4.1 million therms for the fiscal year ended June30, 2006. Changes in therm volume are due to changes in weather, facility usage, accounts,, and participants from year to year.

SPURR's ten largest customers in the core program accounted for32.7% of total gas revenues in that program for the fiscal year ending June 30, 2007, up slightly from the prior fiscal year.

Interestexpense and interest income increased in 2007 due to interest rate increases in the capital and investment markets.

-4-

SCHOOL PROJECT FOR UTILITY RATE REDUCTION Management's Discussion ai1d Analysis of

Financial Condition and Results of Operations Fiscal Years Ended June 30, 2007 & 2006

Condensed Statement of Cash Flows

The Condensed Statement of Cash Flows presents infonnation about cash activity during the year. The statement is divided into sections that detail cash provided or used by all activities affecting the program operating, investing, and financing plus the beginning and ending cash balances.

(in thousands) (in thousands) 2007 2006

Cash provided (used) by: Operating activities $ (562) $ I, 151 Investing activities (1,0!0) ( 3,!39) Financing activities 1,656 2.619

Net change in cash $ 84 $ 631 Cash, beginning of year 1,383 752 Cash, end of year $ 1,467 $ I ,383

The major changes in cash provided or used by SPURR are the result of the timing of vendor payments with the alternative of maximizing safe, highly liquid investments.

Prospective Outlook Affecting Fiscal Years 2007/2008 and Beyond

As this Annual Report is being .finalized in early December 2007, wholesale spot market natural gas prices for January 2008 delivery in Northcm California have vacillated between a price of$ 5.30 and $10.00 per MMBtu during the most recent six months. Elevated demand for energy on a worldwide basis, limits on other sources of energy (such as coal and nuclear) and limits ·on construction of additional natural gas-infrastructure facilities (such as shipping terminals for liquificd natural gas) are among the factors causing price volatility. We believe that continued tightness in supply may lead to extreme volatility in pricing for the foreseeable future.

We manage volatility. in two ways. First, we have increased the number of suppliers on whom we rely. This provides us with better visibility on prices (as we.have more sources of infonnation) as well as better prices overall (as more suppliers compete for our business). Second, we purchase gas for future delivery under a variety of fixed price contracts with our multiple vendors. We enter into these fixed price contracts at different times, in a process similar to "dollar cost averaging" in a retirement plan. That is, we lock in prices a little bit at a time; so we may never have the "best" price for fixed price gas, but we should not have the "worst" price either. Our prices will be both more predictable and more stable than gas suppliers who do not engage in these types of risk management strategies.

- 5 -

SCHOOL PROJECT FOR UTfLITY RATE REDUCTION Management's Discussion and Analysis of

Financial Condition and Results of Operations Fiscal Years Ended June 30, 2007 & 2006

Prospective Outlook Affecting Fiscal Years 2007/2008 and Beyond (continued)

One issue not within our control is the perfonnancc of the local utility company, PG&E, which is responsible for delivering our gas to our participants' facilities, as well as for handling metering responsibilities. Since the utility has a legal monopoly on those functions, we cannot shop elsewhere if we are dissatisfied with the utility's services.

On October 19, 2004, SPURR filed suit in California Superior Court (Alameda County) against several participants in California's natural gas markets. The case seeks recovery of damages related to the defendants' intentional false reporting of natural gas price and trading information and sham sales to artificially inflate natural gas prices and to fix the price of natural gas "in California for the defendants' benefit. SPURR has separately settled its claims against two defendants for (a) cash and (b) cooperation. The cash payments have been modest, but the infonnation obtained through the defendants' cooperation concerning non-settling defendants has been invaluable. The settlement funds have been placed in a trust account to cover litigation costs. At this time, it is not possible to predict accurately the resolution of this case but no material adverse outcome is anticipated.

- 6 -

SCHOOL PROJECT FOR UTILITY RATE REDUCTION Statement of Net Assets

For the Fiscal Years June 30, 2007 and 2006

ASSETS 2.QQ1 2.QM Cash and cash equivalents in bank s 887,807 $ I ,024,218 Cash in County treasury 578,694 358,675

Total cash and cash equivalents $ l ,466,500 $ 1,382,893

Accounts receivable 5,257,217 4,096,621 Advances on behalf of CUB 234,426 Operating Imbalance 198,000 194,000 Investments 8,427,079 6,919,514 Gas in storage I ,827,372 I ,389,000 Gas Option contracts 48,670

Total assets $ 17,176,168 $ 15,648,017

l.IABI!.IIIES Accounts payable $ 3,163,250 $ 2,942,509 Revenue anticipation notes 8,750,000 6,890,000 Accrued interest on revenue anticipation notes 359,844 159,996 Deferred revenue 1,821,051 1,335,000

Total liabilities $ 14,094,145 $ II ,327,505

NEIASSEIS Unreserved or undesignated $ 3,082,024 $ 2,937,619

Total net assets $ 3,082,024 $ 2,937,619

The accompanying notes are an integral part of these financial statements.

- 7-

SCHOOL PROJECT FOR UTILITY RATE REDUCTION Statement of Activities

For the Fiscal Years Ended June 30, 2007 and 2006

Revenues 2JlQ1 Operations

Natural gas revenues $ 44,180,371 $

Expenses Operations

Natural gas costs $ 43,348,903 $ Management and administration 688,263

Total operating expenses $ 44,037,166 $

Operating income $ 143,205 $

Other income (expenses) lnterestincome $ 501,472 $ Interest expense (404,256) Other expense (46,718) Bank charges {49,299)

Total other income (expenses) $ 1,200 $

Changes in net assets $ 144,405 $

Net assets at beginning of year 2,937,619

Net assets at end of year $ 3,082,024 $

~

43,308,348

41,336,581 631,072

41,967,653

1,340,695

228,672 ( 173,995)

(42,067) {44,469z

{31,859)

1,308,834

I ,628,785

2937619

The accompanying notes are an integral part of these financial statements.

- 8-

SCHOOL PROJECT FOR UTILITY RATE REDUCTION Statement of Cash Fiows

For the Fiscal Years Ended June 30, 2007 and 2006

2illll 2.0.QQ Cash flows from operating activities

Receipts from natural gas customers $ 43,790,815 $ 43,900,047 Payments to suppliers (43,900,616) (42,558,293) Payments of management and administration fees (451 ,922) (615,550) Net reimbursements from CUB 424,856

Net cash provided by (used in) operating activities $ (56! ,723) $ 1,151,060

Cash flows from investing activities Interest received $ 497,302 $ 234,793 Net sales of investments ~I ,507 ,565} (3,374,028)

Net cash (used in) investing,activities $ (1,01 0,263) $ (3, 139,235)

Cash flows from financing activities Issuance ofRANS 2006 $ 8,750,000 $ 6,890,000 Repayment ofRANS 2005 (6,890,000) ( 4,200,000) Interest payments ~204,408) {70, 783)

Net cash provided by financing activities $ I ,655,592 $ 2,619,217

Net increase in cash and ca~h equivalents $ 83,607 $ 631,042

Cash and cash equivalents at beginning.ofyear I ,382,893 751,851

Cash and cash equivalents at end of year $ 1.466,500 $ 1,382,893

Cash flows from operating activities Operating income $ 143,205 $ 1,340,695 Adjustments to reconcile operating income to net cash provided by (used in) operating activities Changes in assets and liabilities

Accounts receivable (1,203,774) (101,546) Advances on behalf of CUB 234,426 424,856 Gas in storage (438,372) (337 ,670) Accounts payable 220,741 53,202 Operating imbalance (4,000) (428,850) Deferred revenue 486,051 200,373

Net cash provided by (used in) operating activities $ (561, 723} $ I, 151,060

The accompanying notes are· an integraLpart of these financial statements.

'9-

SCHOOL PROJECT FOR UTILITY RATE REDUCTION Notes to Financial Statements

Fiscal Years Ended June 30, 2007 & 2006

Membership and Pumose

SPURR membership is open to all California public school K~ 12 districts, community college districts, and County Offices ofEducation, as specified in SPURR's bylaws. SPURR was fom1ed to seek reduction and control of utility costs for its members. Governance is provided by a Board of Directors representing a cross section of the members. As of2007, there were approximately 255 members of SPURR. Not all members participate in the SPURR natural gas acquisition program.

SPURR is a ''core aggregator" which aggregates the natural gas requirements of approximately 200 public agencies, including SPURR members and non-member public agencies (the "Program Participants" or "Participants"), as allowed by the California Public Utilities Commission. SPURR purchases gas from natural gas wholesale suppliers under a.program seeking a combination of low prices, price stability and supply rcli~bility. SPURR also arranges for the delivery of this gas to the local distribution utility, PG&E. PG&E then transports the natural gas to the program participants at their approximately 3,400 usage sites in Northern California. SPURR collects PG&E's local transportation charges from the participants and remits those funds to PG&E. SPURR also pays other transportation and commodity vendors as necessary and charges those costs to the participants as part of the cost of natural gas.

As required by PG&E and applicable regulation, SPURR "nominates" a projected program gas usage amount onto the PG&E system each day. Subsequent to the usage dates, PG&E reads the meters at each usage site and transmits that information to SPURR for use in billing participants and in program accounting. The differences between the amounts nominated by SPURR, the "determined usage", and "metered usage" subsequently computed by PG&E, constitute "imbalances" which are cured by purchases, sales, or trades of natural gas by SPURR. Imbalances are typically settled three months after the usage month,. but may be settled up to several years after the usage month under applicable regulation. Imbalances at· June 30, 2007 represented an over delivery of 27;1 00 MMBtu of gas, with a projected receivable of$198,000 based on actual . . market prices,

SPURR also operates a "noncore" natural gas buying program for a number of larger gas accounts at facilities operated by schools and other public agencies on the PG&E system. SPURR's natural gas program operates solely within PG&E's natural gas service territory, except for one non-core account on the Southern California Gas Company System. Non core meters areread in a timelier manner than core meters, so. imbalances are typically resolved within 30 days·of the usage month.

Under applicable state and federal regulations, utility companies are allowed to correct or restate the actual amount of ga5 purchased in a given month for a period of several years after that month has ended. Such retroactive adjustments are common in California, and give rise to additional imbalances, which must be cured as discussed above. More commonly, imbalances are due to monthly differences between "determined usage" and "metered· usage".

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._ :.:

' SCHOOL PROJECT FOR UTILITY RATE REDUCTION

Notes to Financial Stktements Fiscal Years Ended June 30, 2007 & 2006

Membership and Purpose (continued)

SPURR has entered into a contract with North Star Consulting, Inc. ("NSC"), of Concord, California, to provide gas program management services. Such services include nomination and balancing of gas supply, negotiation of supply and transportation arrangements, cost accounting and billing to participants, collection from participants, contract management, payment of supplier invoices, and collection and payment ofPG&E local transportation costs .. NSC has subcontracted certain operational services to Golden Valley Gas Services, Inc., of Dublin, California.

In addition to operational responsibilities, NSC's responsibilities include: marketing services, developing an advocacy strategy with respect to core gas aggregation and the unbundling of cost in the utility industry, customer service, communications, and new program development. NSC also provides administrative and accounting services to SPURR. SPURR pays management fees to NSC on a centscpcr-therm basis. Management fees totaled approximately $592,000 and $562,000 for the years ended June 30, 2007 and 2006, respectively, with approximately $106,000 payable at June 30, 2007 and $89,000 payable at June 30, 2006. NSC is responsible for payment offees to any subcontractors.

Summary of Significant Accounting Policies

SPURR's accounting policies confonn to accounting principles generally accepted .in the United States of America as prescribed by the Governmental Accounting Standards Board ("GASB") and the American Institute of Certified Public Accountants. Significant accounting policies are summarized below.

Fund accounting

To ensure the proper identification of individual revenue sources and the expenditures made from those revenues, SPURR's accounts are organized into two funds. The operations of each fund are accounted for with a separate set of accounts that comprise its assets, liabilities, net assets, revenues and expenditures, as appropriate.

The Enterprise Fund is used to account for gas program revenues and gas supply and transportation expenses; the General Fund is used to account for management fees and any other non-gas program revenues and expenses. The net assets of both the Enterprise Fund and the General Fund are unreserved and undesignated for any specific purposes, excluding the assets pledged in connection with the RANs issuance.

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SCHOOL PROJECT FOR UTILITY RATE REDUCTION Notes to Financial Statements

Fiscal Years Ended June 30, 2007 & 2006

Summary of Significant Accounting Policies (continued)

Basis of Presentation

The Governmental Accounting Standard's Board (GASB) released Statement No. 34, "Basic Financial Statements and Management's Discussion and Analysis for State and Local Governments", which established a new reporting format for annual financial statements; SPURR adapted GASB 34 in fiscal 2003. That financial statement presentation provides a more comprehensive, entity-wide perspective of SPURR's assets, liabilities, revenues, expenses and cash flows, following the "business-type activities" ("bta") reporting requirements of GASB 34.

Measurement Focus and Basis of Accounting

For financial statement purposes, SPURR is considered a special-purpose government entity engaged only in business-type activities. Therefore, SPURR's financial statements are reported using the total economic resources measurement focus and full accrual basis of accounting. SPURR follows those Financial Accounting Standard Board ("FASB") Statements issued before November 30, 1989, which do not conflict with GASB statements and does not apply FASB statements issued subsequent to November 30, 1989.

Net assets, reserves and designations

Net assets represent all of SPURR's assets less its liabilities. Portions of SPURR's net assets may be reserved or designated to indicate limitations placed by the agency providing the funds, or designated by Board action. No such reserves or designations existed at June 30, 2007 or 2006, except in connection with issuance ofRANs.

Accounts receivable

Accounts receivable consists of billed and unbillcd amounts to members based on actual gas usage. Billings are rendered monthly to members and participants based on actual gas usage. Unbilled receivables are the result of gas usage through year-end, which is not billed until subsequent to year-end. Management is of the opinion that member accounts receivable are collectible in full and consequently, no allowance for bad debts has been included in the accounts.

Use of estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions tl1at affect the reported amounts of assets and liabilities and disclosure of contingent assets .and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Estimates are used when accounting for the operating imbalance and contingencies among others. Actual results could differ from those.estirnates.

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SCHOOL PROJECT FOR UTILITY RATE REDUCTION Notes to Financial Statements

Fiscal Years Ended June 30, 2007 & 2006

Sum mao' of Significant Accounting Policies (continued)

Budget

SPURR's budget is subject to public hearings and is legally enacted through passage of a resolution by SPURR's Board of Directors prior to the start of each fiscal year.

The budget is prepared on the accrual basis of accounting and budget/actual comparisons in this report use that basis. These budgeted amounts are as originally adopted or as amended by the Board of Directors. Individual amendments were not material in relation to the original appropriations.

The following tables present a comparison of the 2007 revised budget and 2007 actual for SPURR along with the 2008 budget.

(in thousands)

200R 2007 2007

Bud set Revised Actual Variance Gas revenues $ 46,300 $ 43,500 $ 44,180 s 680

Gas costs 45,050 42,250 43.349 (1099)

Margin $ 1,250 1,250 831 4!9

Management costs 585 625 688 63 Interest expense 400 350 404 54

Interest income (379) (400) (50!) ( 101)

Other expenses 100 !00 96 (4)

Net income $ 544 $ 575 $ 144 $ 431

Net assets at beginning of year 2,936 2 937 2,937

Net assets at end of year $ 3.480 $ 2,854 $ 3.082 $ 228

Cash and Cash Equivalents in Banks and County Treasury

Cash and cash equivalents are.$1,466,500 and $1,382,893 as of June 30,2007 and 2006 respectively, and include: a disbursement account, a·tcmporary investment account, and cash on deposit with the Alameda County Treasurer. The investment account is administered by Union Bank of California and Wells Fargo Bank in which, on a daily basis,.excess cash isswept into the account. Money market investments, which were uninsured and unsecured, totaled approximately $8,427,079 and $6,919,514 at June 30, 2007 and 2006, respectively. Cash on deposit with the Alameda County Treasury is pooled with other funds and invested by the County in accordance with the provisions oftheCalifomia Government Code.

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Investments

SCHOOL PRmECT FOR UTILiTY Ri\TE ::\EDUCTION Notes to Financial Statements

Fiscal Years Ended June 30, 2007 & 2006

SPURR has invested in the Pooled Money Investment Account ("PMIA") of the Local Agency Investment Fund ("LAIF") maintained by the Office of the Treasurer of the State of California. The carrying value of the investments approximates their fair market value. As such, all amounts cannot be classified in terms of market risk because they do not represent specifically identifiable investments. The PM IA consists of highly liquid investment instruments such as certificates of deposits, high-grade commercial paper, and the like. The "Average Life of Portfolio" for the PMIA as reported by LAIF was 165 days as of June 30, 2007. In addition, LAIF reported that over 71% ofPMIA maturities were 120 days or less as of June 30,2007. Additionally, SPURR has short term investments in Wells Fargo Bank and Union Bank of California. The banks investthe funds in US government bonds and high-grade commercial paper.

Gas Supply and Transportation Costs

Gas supply and transportation costs included the following at June 30, 2007 and 2006, respectively:

Gas supply costs Transportation costs Total gas supply and transportation costs

Gas in Storage and Deferred Revenue

2007 $ 31,238,488

12,110,415 s 43,348,903

2006 $ 30,200,975

11 '135,606 $ 41 ,336,581

At June 30, 2007, in anticipation 6f winter consumption requirements, SPURR had purchased gas and placed itin storage with independent gas storage providers. The gas costs were allocated to participants .and billed to them at the time of purchase such billings totaled $1,821 ,000 and $1,335,000 at June 30, 2007 and 2006, respectively. Gas is withdrawn from storage during high consumption months from November through March and credits are applied to Participants' accounts during those withdrawal months. As ofJune 30, 2007 and 2006, gas costing and $1,827,000 and $1,389,000 respectively had been placed in storage. Such gas is stated at cost using the first-in, first-out basis.

Revenue Anticipation Notes

SPURR issues Revenue Anticipation Notes ("RA.Ns") to cover seasonal working capital reCJuirements in anticipation of winter gas consumption and the normal biliing and collection cycle of Participants' accounts.

On October 5, 2006, SPURR issued $8,750,000 in Revenue Anticipation Notes (the "2006 RANs"). The 2006 RANs incurred a stated interest rate of4.50% per annum and a due date of October 4, 2007. Such redemption was completed .on that date. ,SPURR is, and at all times since issuance has been in full compliance with all provisions ofthe.2006 RANs loan indenture.

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SCHOOL PROJECT FOR UTILITY RATE REDUCTION Notes to Financial Statements

Fiscal Years Ended June 30, 2007 & 2006

Revenue Anticipation Notes (continued)

On October 1!, 2007, SPURR issued $6,300,000 in Revenue Anticipation Notes (the "2007 RANs"). The 2007 RANs incur interest at a rate of 4.25% per annum and are due on October 10, 2008. SPURR is, and at all times since issuance has been in full compliance with all provisions ofthe 2007 RANsloan indenture.

SPURR has pledged $2, l 00,000 of revenues attributable to April 2008, $2,100,000 of revenues attributable to May 2008, and $2,100,000, plus interest due, attributable to June 2008. Pledged revenue represents approximately 13% of total estimated revenues from natural gas receipts.

Contingencies

Utility companies can and do make adjustments to their reported actual usage amounts for a period extending up to several years from the month in which the gas was used. Increases in reported actual usage require that gas be purchased in the open market to cure the imbalance, and there is a risk that open market p1ices will be higher than prices paid in the month the gas was used. Downward adjustments of reported actual usage require sales of gas, and these sales may be at prices lower than the price paid in the month the gas was used.

The financial statements reflect all material purchases or sales of gas required as a result of such adjustments which were known to management at the date these financial statements were prepared. However, no provision has been made for the effects of any additional future adjustments which may be required by the utility companies.

On October 19, 2004, SPURR filed suit in California Superior Court (Alameda County) against several participants in California's natural gas markets. The case seeks recovery of damages related to the defendants' intentional false reporting of natural gas price and trading information and sham sales to artificially inflate natural gas prices and to fix the price of natural gas in California for the defendants' benefit. At this time, it is not possible to predict accurately the resolution of this case but no material adverse outcome is anticipated.

Concentrations

As described above, PG&E transports natural gas to participants through its pipeline and transmission mechanisms. PG&E also provides the metered usage data for the program. The program's operations depend upon these PG&E services.

As described above, NSChas sub-contracted with others to perform certain operational services of the.program. In the event that. any sub-contractor no longcr.performed such servicesfor the program, NSC would contract with other available service providers .

. 15 -

SCHOOL PROJECT FOR UTILITY RATE REDUCTION Notes to Financial Statements

Fiscal Years Ended June 30, 2007 & 2006

Related Partv Transactions

NSC previously perfonned management services for another joint powers authority, The California Utility Buyers JPA ("CUB"). To achieve certain economic benefits of scale for both CUB and SPURR, CUB operated in tandem with the SPURR program for the procurement of natural gas, gas transportation services and gas storage services; during the year, SPURR paid invoices for these items on CUB's behalf. As a result of those transactions, approximately SO and $234,426 was advanced on CUB's behalf at June 30, 2007 and 2006, respectively. SPURR charged CUB interest based on each month's average outstanding balance computed at a market rate of interest. As of June 30, 2006 CUB ceased operations and any remaining Cub program participants were transferred to SPURR. During the year ending June 30,2007, SPURR paid NSC for services and reimbursed expenses totaling $354,554. At June 30, 2007, SPURR owed NSC $365,699 for services and reimbursed expenses.

Commitments-Gas Purchase Price Management

SPURR aggregates purchases for the purpose of reducing and managing volatility with (espect to the net effective cost of natural gas and other services supplied to its program participants. By aggregating large purchases of natural gas and related services (e.g., interstate and intrastate transportation of gas, gas storage, billing and reporting), the program is intended to reap the benefits of direct access .to wholesale markets, as well as the ability to protect against price spikes, and to pass those benefits along to their participants

In particular, in responseto continued volatility in natural gasprices on a national level and within . . .

California, which put a great deal of pressure on participants' energy budgets, SPURR began the 2007/2008 fiscal year with contractually fixed-price costs for approximately 25% of projected gas usage of participants (about the same as in the prior fiscal year). SPURR's goal is to have between 40% and 50% of projected fiscal year gas usage under fixed price.contractby not later than 90 days in to the fiscal year. SPURR made.no deposits during the fiscal year ending June 30, 2007 for gas deliveries in the subsequent fiscal year.

It is theopinion of SPURR that, as a consequence of this risk-reduction-strategy, its participants have a much higher level of budgetary protection than they had in fiscal years prior to the implementation of this price protection strategy (forthe 2001/2002 fiscal year). There can be no assurance as to whether or not these ·fixed-price contract rates will be above or below spot market prices that may be available over:the course of the current fiscalyear; however, management"is of the opinion that the fixed-price rates will not have·a material effect on SPURR's financial operations.

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SCHOOL PROJECT FOR UTILITY RATE REDUCTION Notes to Financial Statements

Fiscal Years Ended June 30, 2007 & 2006

Gas .Purchase Commitments

SPURR's obligations for natural gas purchases at June 30, 2007 and 2006, were $15,386,288 and $13,733,514, respectively. The contract lengths and natural gas sources of SPURR's procurement contracts fluctuate based on market conditions.

- 17-

- -S_Ch\yartz Glanmm Lailtf'l)_er@r &Adamson

fNDEPENDENT AUDITORS' REPORT

To the Board of Directors School Project for Utility Rate Reduction Concord, Califomia

We have audited the accompanying financial statements of School Project for Utility Rate Reduction ("SPURR") as of and for the years ended June30, 2007 and 2006, as listed in the table of contents. These financial statements are the responsibility of SPURR's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audit in accordance with auditing standards generally accepted in th1 United States of America. Those standards require that we plan and perform the audit t< obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration ofintemal control over financial reporti1 as a basis for designing audit procedures that are appropriate in the circumstances, but 1

for the purpose of expressing an opinion on the effectiveness of SPURR's internal cont over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures ir the financial statements,.assessing the accounting principles used and significant estimates.made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects the financial position of SPURR as of June 30, 2007 and 2006, and the change in its financial position and its cash flows for- the years then ended in conformitywith accounting principles generally accepted in the United States of America.

The Management's Discussion and Analysis ("MD&A") on pages 2 through 6 is not a required part of the basic financial statements but is supplementary information require by the Governmental Accounting Standards Board. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the required supplementary information.

rrno<hy J. Seilwonz. CPA However, we did not audit the information and express no opinion on it. Gary f, 9ian~ini. CPA

Pnilip lmnsiJ<Hge~, CPA

Wiliii!m H_ Ada(r,son

Reoccca F0rrt Rt!y, CPA

Rcb\!r! Greys, CPA

4578 teethe; River Dr1ve

Sl.<'te 0

Stnr_kton, C<!liforniii 95219

Pt1: 209.47.4.l08L

~x: ?.09.'l7~.030i

)J~ww."f, )JriM~'w-:~, {7)-.t?a,f~t- I 0)/J.Jf-..orM Stockton, California November 28, 2007

- 18-

APPENDIXD

FORM OF FINAL OPINION OF BOND COUNSEL

[Letterhead of Quint & Thimmig LLP]

Board of Directors School Project for Utility Rate Reduction 1430 Willow Pass Road, Suite 240 Concord, California 94520

[Closing Date]

OPINION: $7,500,000 School Project for Utility Rate Reduction 2008 Revenue Anticipation Notes (Natural Gas Purchase Program for Member California School Districts and Community Colleges)

Members of the Board of Directors:

We have acted as bond counsel to the School Project for Utility Rate Reduction ("SPURR") in connection with the issuance by SPURR of $7,500,000 principal amount of School Project for Utility Rate Reduction 2008 Revenue Anticipation Notes, dated October 30, 2008 (the "Notes"), pursuant to Article 7.6 (commencing with section 53850), Chapter 4, Part 1, Division 2, Title 5 of the California Government Code, and a resolution of the Board of Directors of SPURR (the "Board") adopted on September 9, 2008 (the "Resolution"). We have examined the law and such certified proceedings and other papers, as we deemed necessary to render this opinion.

As to questions of fact material to our opinion, we have relied upon representations of SPURR contained in the Resolution and in the certified proceedings and certifications of public officials and others furnished to us, without undertaking to verify such facts by independent investigation.

Based upon our examination, we are of the opinion, as of the date hereof, that:

1. SPURR is duly created and validly existing as a joint exercise of powers authority with the power to issue the Notes and to perform its obligations under the Resolution and the Notes.

2. The Resolution has been duly adopted by the Board and creates a valid first lien on the funds pledged under the Resolution for the security of the Notes.

3. The Notes have been duly authorized, executed and delivered by SPURR and are valid and binding general obligations of SPURR enforceable in accordance with their terms.

4. Subject to SPURR's compliance with certain covenants, interest on the Notes is excludable from gross income of the owners thereof for federal income tax purposes under section 103 of the Internal Revenue Code of 1986, as amended (the "Code") and, under section 55 of the Code, is not included as an item of tax preference in computing the federal alternative minimum tax for individuals and corporations under the Code but is taken into account in computing an adjustment used in determining the federal alternative minimum tax for certain corporations. Failure by SPURR to comply with one or more of such covenants could cause interest on the Notes to not be excludable from gross income under section 103 of the Code for federal income tax purposes retroactively to the date of issuance of the Notes.

5. Interest on the Notes is exempt from personal income taxation imposed by the State of California.

Appendix D Page 1

Ownership of the Notes may result in other tax consequences to certain taxpayers, and we express no opinion regarding any such collateral consequences arising with respect to the Notes.

The rights of the owners of the Notes and the enforceability of the Notes and the Resolution may be subject to bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting creditors' rights heretofore or hereafter enacted and also may be subject to the exercise of judicial discretion in accordance with general principles of equity.

In rendering this opinion, we have relied upon certifications of SPURR and others with respect to certain material facts. Our opinion represents our legal judgment based upon such review of the law and the facts that we deem relevant to render our opinion and is not a guarantee of a result. This opinion is given as of the date hereof and we assume no obligation to revise or supplement this opinion to reflect any facts or circumstances that may hereafter come to our attention or any changes in law that may hereafter occur.

Respectfully submitted,

Appendix D Page 2

APPENDIX£

FORM OF CONTINUING DISCLOSURE CERTIFICATE

This Continuing Disclosure Certificate (the "Disclosure Certificate") is executed and delivered by the SCHOOL PROJECT FOR UTILITY RATE REDUCTION ("SPURR") in connection with the issuance by SPURR of $7,500,000 School Project for Utility Rate Reduction 2008 Revenue Anticipation Notes (the "Notes"). The Notes are being issued pursuant to a resolution adopted by the Board of Directors of SPURR on September 9, 2008 (the "Resolution"). SPURR covenants and agrees as follows:

Section 1. Purpose of the Disclosure Certificate. This Disclosure Certificate is being executed and delivered by SPURR for the benefit of the holders and beneficial owners of the Notes and in order to assist the Participating Underwriters in complying with S.E.C. Rule 15c2-12(b)(5).

Section 2. Definitions. In addition to the definitions set forth in the Resolution, which apply to any capitalized term used in this Disclosure Certificate unless otherwise defined in this Section, the following capitalized terms shall have the following meanings:

"Dissemination Agent" shall mean SPURR, or any successor Dissemination Agent designated in writing by SPURR and which has filed with SPURR a written acceptance of such designation.

"Listed Events" shall mean any of the events listed in Section 3(a) of this Disclosure Certificate.

"Participating Underwriter" shall mean any of the original underwriters of the Notes required to comply with the Rule in connection with offering of the Notes.

"Repository" shall mean each State Repository.

"Rule" shall mean Rule 15c2-12(b)(5) adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as the same may be amended from time to time.

"State Repository" shall mean any public or private repository or entity designated by the State of California as a state repository for the purpose of the Rule and recognized as such by the Securities and Exchange Commission. As of the date of this Disclosure Certificate, there is no State Repository.

Section 3. Reporting of Significant Events.

(a) Pursuant to the provisions of this Section 3, SPURR shall give, or cause to be given, notice of the occurrence of any of the following events with respect to the Notes, if material:

(i) Principal and interest payment delinquencies. (ii) Non-payment related defaults. (iii) Unscheduled draws on debt service reserves reflecting financial difficulties. (iv) Unscheduled draws on credit enhancements reflecting financial difficulties. (v) Substitution of credit or liquidity providers, or their failure to perform. (vi) Adverse tax opinions or events affecting the tax-exempt status of the security. (vii) Modifications to rights of security holders. (viii) Contingent or unscheduled bond calls. (ix) Defeasances. (x) Release, substitution, or sale of property securing repayment of the securities. (xi) Rating changes.

(b) Whenever SPURR obtains knowledge of the occurrence of a Listed Event, SPURR shall as soon as possible determine if such event would be material under applicable Federal securities law.

(c) If SPURR determines that knowledge of the occurrence of a Listed Event would be material under applicable Federal securities law, SPURR shall promptly file a notice of such occurrence with the Municipal Securities Rulemaking Board and each State Repository. Notwithstanding the foregoing, notice

Appendix E Page 1

of Listed Events described in subsections (a)(8) and (9) need not be given under this subsection any earlier than the notice (if any) of the underlying event is given to holders of affected Notes pursuant to the Resolution.

Section 4. Termination of Reporting Obligation. SPURR's obligations under this Disclosure Certificate shall terminate upon the legal defeasance, prior redemption or payment in full of all of the Notes. If such termination occurs prior to the final maturity of the Notes, SPURR shall give notice of such termination in the same manner as for a Listed Event under Section 3(c).

Section 5. Dissemination Agent. SPURR may, from time to time, appoint or engage a Dissemination Agent to assist it in carrying out its obligations under this Disclosure Certificate, and may discharge any such Agent, with or without appointing a successor Dissemination Agent. The initial Dissemination Agent shall be SPURR.

Section 6. Amendment; Waiver. Notwithstanding any other provision of this Disclosure Certificate, SPURR may amend this Disclosure Certificate, and any provision of this Disclosure Certificate may be waived, provided that the following conditions are satisfied:

(a) if the amendment or waiver relates to the provisions of Section 3(a) it may only be made in connection with a change in circumstances that arises from a change in legal requirements, change in law, or change in the identity, nature, or status of an obligated person with respect to the Notes, or type of business conducted;

(b) the undertakings herein, as proposed to be amended or waived, would, in the opinion of nationally recognized bond counsel, have complied with the requirements of the Rule at the time of the primary offering of the Notes, after taking into account any amendments or interpretations of the Rule, as well as any change in circumstances; and

(c) the proposed amendment or waiver either (i) is approved by holders of the Notes , or (ii) does not, in the opinion of the Trustee or nationally recognized bond counsel, materially impair the interests of the holders or beneficial owners of the Notes.

Section 7. Additional Information. Nothing in this Disclosure Certificate shall be deemed to prevent SPURR from disseminating any other information, using the means of dissemination set forth in this Disclosure Certificate or any other means of communication, or including any other information in any notice of occurrence of a Listed Event, in addition to that which is required by this Disclosure Certificate. If SPURR chooses to include any information in any notice of occurrence of a Listed Event in addition to that which is specifically required by this Disclosure Certificate, SPURR shall have no obligation under this Disclosure Certificate to update such information or include it in any future notice of occurrence of a Listed Event.

Section 8. Default. In the event of a failure of SPURR to comply with any provision of this Disclosure Certificate any holder or beneficial owner of the Notes may take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause SPURR to comply with its obligations under this Disclosure Certificate. A default under this Disclosure Certificate shall not be deemed an Event of Default under the Resolution, and the sole remedy under this Disclosure Certificate in the event of any failure of SPURR to comply with this Disclosure Certificate shall be an action to compel performance.

Section 9. Duties, Immunities and Liabilities of Dissemination Agent. The Dissemination Agent shall have only such duties as are specifically set forth in this Disclosure Certificate, and SPURR agrees to indemnify and save the Dissemination Agent, its officers, directors, employees and agents, harmless against any loss, expense and liabilities which it may incur arising out of or in the exercise or performance of its powers and duties hereunder, including the costs and expenses (including attorneys fees) of defending against any claim of liability, but excluding liabilities due to the Dissemination Agent's negligence or willful misconduct. The obligations of SPURR under this Section shall survive resignation or removal of the Dissemination Agent and payment of the Notes.

Appendix E Page 2

Section 10. Beneficiaries. This Disclosure Certificate shall inure solely to the benefit of SPURR, the Dissemination Agent, the Participating Underwriters and holders and beneficial owners from time to time of the Notes, and shall create no rights in any other person or entity.

Date: [Closing Date]

SCHOOL PROJECT FOR UTILITY RATE REDUCTION

BY------~~~~~----------­Managing Director

Appendix E Page3